By Herron Todd White
We are now, at the time of writing this, almost two months into these tough social distancing rules, restrictions and temporary closures of many businesses across many industries. Although it feels like it has been a lot longer, it is still quite early into the influence this COVID-19 pandemic is likely to have on our lives, the (macro) economy and what was and will be considered the norm for many different things moving forward.
When specifically looking at the residential property market, there were some obvious sudden impacts, such as the banning of on-site auctions and all open homes to be by appointment only. There were also sudden changes to levels of market sentiment, for instance how confident purchasers in the market felt buying a new property and committing to a mortgage in a time of current economic uncertainty or paying top dollar for a property in a desirable location.
What has been less sudden and to be frank, what most of us are interested in, is the impact on property values. The property market (value speaking) is a lag indicator, so changes in value due to the COVID-19 pandemic are still too early to call, however to get some indication of where things are tracking, the best evidence to look at is: properties that have sold from April to now; how long properties are taking to sell; and whether there have been (and how many) downward price adjustments made to properties with an advertised price guide. Speaking specifically of Canberra, the market has held its ground since late March with prices remaining consistent with pre-COVID-19 levels, but moving forward, it may be a case of groundhog day with prices remaining where they are and growth very much negated by the fact that confident market sentiment is no longer there.
The topic of renovations and value-adding is a contentious one. Generally speaking, the kitchen and bathroom areas of a property are where it is wise to invest capital, either through regular maintenance or upgrading, as these are focal communal points of a property where significant time is spent. In current circumstances, it is those who bought five plus years ago who are in the best position to do this, drawing on the growth in their equity of their property from good capital growth to pay for renovations to invest back into their property.
A local example is a property in the south side suburb of Chisholm, which has a median house price of $607,500 (source: realestate.com.au pricing data as at 28 April 2020). Comprising a small, 1990s built three-bedroom, one-bathroom dwelling with a dated fit-out located on a small block, it was purchased in 2001 for a figure in the vicinity of $150,000.Valued as it was, a figure of $450,000 was adopted based on the valuation assessment method. This represented a tripling in its value over that time period just from capital growth. The client was able to tap into the increase in their equity to undertake an internal renovation.
Those who purchased during the market peak (2018 to 2019) haven’t seen the previous levels of growth continue, so the growth in their equity may not be sufficient enough to use to undertake renovations.
Day-to-day work volumes on a ground level haven’t shown any noticeable increase in the number of requests coming through for owner occupied or investor properties being renovated. The desire to undertake such a project may be there, as more people work from home and become aware of dated internal fit-outs or neglected maintenance, however home renovations are likely to be considered a luxury and non-necessity, therefore in a period of restrained consumer spending, there hasn’t been a sudden rise in the number of renovation jobs for established properties.
Those that are coming through tend to be owneroccupied properties. Property owners in a position to invest back into their property are doing so for their primary place of residence and it tends to be suburbs where the majority of the residential stock was established in the mid-1980s and early 1990s, such as Isabella Plains, Calwell and Theodore. These properties are now 25 plus years old and are showing their age through dated internal fit-outs and worn appliances. In the current circumstances, these properties also tend to be the most sensible to renovate, particularly three-bedroom properties, as their buy-in price point tends to be in the low to mid $500,000 range. Their post-renovation buy-in price point usually ranges from high $500,000 to mid $600,000 depending on the level of finishes and if the property is a bathroom plus ensuite property. Properties within this price range are sensible to renovate as they are consistently within an in-demand price range due to their relative affordability in the context of Canberra, where the median house price at the end of 2019 was $788,621 (source: domain.com.au – Domain House Price Report, December Quarter 2019).
When renovating your property it is also important to consider that a half-hearted approach, so to speak, won’t necessarily see an increase in value as opposed to a full renovation, for example, if your property has a dated internal fit-out, choosing to (just) update the vanity unit in the bathroom, or appliances only in the kitchen but leaving everything else as is. This is often because it is an expectation of the market that these high-use items are in good working order and merely updating them is bringing the property in line with what the market expects when paying for a habitable property. To maximise any increase in value when renovating, it is best to do a full kitchen or bathroom renovation.
Another important thing to consider is price. It is important to source multiple quotes. One local example saw a client in the suburb of Richardson source two quotes for the renovation of their bathroom, which was a relatively small size, measuring 5.4 square metres. The two quotes were $40,000 and $25,000.Richardson is one of Canberra’s most affordable suburbs and to outlay a significant sum for a small bathroom renovation did not make economic sense as buyer demand for high-end bathroom fit-outs in Richardson isn’t strong. Before undertaking any renovation work, consider what the market demands in a specific location in order to invest effectively and avoid overcapitalising.
Speak with a Canberra Mortgage Broker today.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.