With (seemingly) never-ending interest rate increases, the question arises “should I renovate or relocate?”
Home improvements seem to be more affordable than the exercise of purchasing a new home, however with the uncertainty and the delays in the Australian construction market, do the pros and cons negate each other?
We’ve summarized some key articles from various banks & news outlets to assist homeowners and home buyers navigate this decision.
Is renovating right for me?
Pros of renovating
POTENTIAL TO ADD VALUE: All home improvements or additions have the potential to increase the value of your home – be it weekend-DIYS such as painting the house, modernizing plumbing fixtures, or more intensive improvements like a new bathroom or kitchen.
Major renovations that increase the floorplan size (like adding a bedroom or a garage) will have larger potential to increase the value of your home, but smaller additions such as installing plantation shutters can still boost value. [source]
EQUITY: If you've been paying off your mortgage for a few years or your home has recently been revalued, this equity can be repurposed to contribute to your renovations.
NO MOVING: If your property is in a sought-after location where the land is high value, it could be a strategic choice to stay put to capitalize on this benefit.
Emotional factors also play a large part in this. You may be in the catchment area for your children’s school, or be located close to your work. If you enjoy living in your current location and neighbourhood and aren’t wanting to change this factor, renovating could be the option for you.
Also, how could we not mention the burden of packing…
Cons of renovating
BUDGETS: Generally, budget is the largest deciding factor between relocating or renovating.
If your home is unlivable during renovations, finding an alternate living situation can stretch your renovation costs. It is advised to be mindful for additional costs associated with renovating, such as:
- Demolition work and skip bin hire
- Inspection reports
- Building surveyor fees
- Asbestos removal
- Accessing building reports
- Furniture storage
DELAYS: It is important to acknowledge the current situation the Australian construction industry is in. Since Covid-19, building supplies have become significant delayed or impossible to source and many national builders have declared bankruptcy
SPEED BUMPS: When renovating it is expected to run into some kind of speed bump. Delays can lead into budget-blow outs, like paying extra for supplies or extended labour. It is recommended to have a 10-20% buffer for any emergency expenses that may arise such as plumbing, electricity or structural problems. [source]
OVERCAPITALISING: Lastly it is crucial to not over capitalise. This is when more money is invested into the renovation than the value it adds to the property. This can be a problem as the funds contributed to the renovations may not be recovered when the property is later sold.
Read more on over capitlising and how to avoid it
Is moving right for me?
Pros of moving
MORE SPACE & A NEW LOCATION: If you are wanting to upsize beyond the capacity of your current property or are wanting a sea change – e.g. if you live in an apartment but want a yard & more bedrooms - moving may be your answer! Although these extras come with the added price tag, your new property should be of higher value in the long run for having additional features, or for being in a more sought-after location. [source]
STRES & TIME: We all know (or can imagine) the stress renovations can cause & the exorbitant time they may take up. Moving straight into a home that requires little or no work can be a determining factor for many individuals or families.
BUDGET: If the cost of renovating your current property is exorbitant or your property is heavily restricted by council regulations, it may be more affordable to relocate. Furthermore, if you’ve recently had your home valued and it has significantly increased, it may be wise to capitalise on this profit and consider moving. In some cases, you may be able to purchase a similar property in a better location, etc.
Cons of moving
COSTS: Although the goal of selling your home is to generate some form of profit, be mindful of the fees associated with selling a home such as:
- Stamp duty
- Real estate agent fees and marketing costs
- Moving costs and removalists
- Solicitor/conveyancer fees
- Rates and taxes post-settlement
- Home staging/styling
WHEN TO SELL: In today’s market, uncertainty is at an ultimate peak in regards to selling and buying. When should I sell? Are interest rates going to continue to increase?
In 2022 we saw incredibly low interest rates, and although this was a blessing at the time the current rate increases are leaving many households with unaffordable mortgage repayments. Having lower interest rates allowed individuals to have a larger borrowing capacity. This in turn allowed for properties to sell at high rates as the average person could seemingly afford more.
The Verdict
Selling may be an option to seriously consider if the ownership of your current property is posing unendurable financial hardship. On the flip side, if you are able to withstand the current economic crisis your property should continue to grow in years to come.
The peak body for residential building in Australia - The Housing Industry Association, is optimistic for 2023. Despite construction cost rises of 20% in the 21-22 FY, Tim Reardon - HIA chief economist, predicts only a further 5 to 7% rise in 2023 - 2024.
We’ll still see prices grow, but by 2024 that rate of growth we expect to slow considerably. The rises in the cash rate are taking demand out of the new housing market but, in contrast, we don’t expect renovations to slow at all.
– Tim Reardon, HIA
Renovating can be a more cost-effective solution but often requires more effort, time and stress. Moving on the other hand delivers your ideal home almost immediately, but may involve more money spent. In both instances, an increase in the value of your property is a benefit.
Speak with the Australia's leading property valuers today.
We recommend speaking with a bank or financial advisor to best guide your decision when selling, purchasing or making major renovations.
All information is subject to change. Information predominantly summarised from: Should you renovate or move? | Westpac