By Herron Todd White
Lismore/Casino/Kyogle Property Update
Following the COVID-19 restrictions in place from early March 2020, the question frequently asked is “How will the property market react during and after COVID-19?”Nothing much has changed since our foray into this loaded question last month, apart from the fact that at least some restrictions are slowly being lifted.
It is true that discussions with local real estate agents in the Lismore, Richmond Valley and Kyogle areas have indicated that general sales activity and enquiry have remained quiet…. however, there does not seem to be any sense of a catastrophic drop in prices expected. Providing locals are able to get back to work or retain employment and regain some sense of normality, a few brave souls have hinted at a launching pad for the local property market to rise! Think about it; the unprecedented low interest rates are unlikely to rise quickly due to a willingness by government and lenders alike to encourage the country to get going again…and this could be a scenario for some time yet.If a potential property investor, first home buyer or upgrader has all the boxes ticked for the lender, today could be a very good time to buy.
Rental accommodation queries remain relatively strong.
With interest rates now at record low levels, there are a number of opportunities some may not have considered outside of the desire to buy a new build. Renovation could potentially feature in the minds of investors, developers, first home buyers and even upgraders. Borrow a few dollars to put some new life back into the tired and dated home.
Cost is naturally going to be a key ingredient in the decision making as well as the end value of the final product.
The option to do this in the Lismore region is to find an established, three-bedroom, two-bathroom dwelling within the $300,000 to $400,000 price bracket. For, Casino and Kyogle, a similar real estate product would be in the region of $250,000 to $350,000.
There is no particular area of Lismore, Casino or Kyogle that has the upper hand on renovation activity…. diamonds in the rough can be found anywhere if you look hard enough.
Renovating an established dwelling rather than commencing a new build can achieve a lot….if done properly. A budget of less than $100,000 could provide an updated kitchen, bathroom, ensuite, general interior and exterior painting and floor coverings. Provided the renovation work emphasises the positive features that are already there OR introduces new features that the market place desires (do your homework for the areas you wish to invest or live in as each locality is different), then the cost to added value ratio could yield some reasonable capital gain….and nicer digs to reside in!
However, the trick is not to over capitalise.
A good option is to seek out those large homes with only two bedrooms and a large living space. Cut the living room to provide a third bedroom and the rental would naturally improve to reflect that of a three-bedroom home.
Older style, turn of the century homes are quite popular for those with an interest in timber and the old world appeal. One good example is a property in Cathcart Street, Girards Hill, out of the flood area and an easy walk into the CBD. The property is a beautiful, circa 1880s timber home with expansive verandahs and fully renovated interior that maintains the heritage character set amongst well-established landscaping, trees and mature gardens. It sold for $880,000 in mid-2019, the price being a record for the suburb of Girards Hill in recent years. However, the cost to renovate and maintain such prized, older-style, weatherboard homes needs to be strictly monitored as one could easily get carried away.
In summary, from a conservative perspective, the purchase of an established house with opportunities to renovate would be a more viable option and purposeful stepping stone to something newer in the future without the millstone of large debt around the neck.
There are land and house packages available today which are competitively priced but are still above the expected price for an established dwelling of average to moderate appeal. Besides, the established house does provide the opportunity for the owner to put their stamp of identity on the renovation project whereas a house and land package is simply that – what you see is what you get and any subtle changes to the design could bring on a wallet attack.
Speak with a Lismore Mortgage Broker today.
Byron Property Update
One month on and what was a blurry view of the post-COVID-19 property market is slowly coming into sharper focus, however with updates on travel restrictions, infection rates and government assistance packages coming at us thick and fast, the situation could be best described as fluid.
A month ago, we were staring down the barrel of a lock down into September. The latest, good news is that intrastate travel in New South Wales will now be allowed from the start of July. This will be a welcome relief for the cash strapped tourism sector in Byron Bay and the surrounding shire. Whilst the lucrative overseas market and interstate market is still out of reach, any visitor numbers are better than no visitor numbers for now. That is the good news. There is, however, mounting evidence that residential sale prices in the shire may have softened since the start of the COVID-19 pandemic.
The following three examples show that some sellers have had to accept lower sale prices post-COVID-19 after listing their properties pre- COVID-19. Exact property addresses are not given to protect the vendor’s and buyer’s privacy, however these are confirmed sales unless stated otherwise.
1. Acreage property, Binna Burra. Listed in February 2020 for $1.35 million. Sold in April 2020 for $1.2 million, an 11.1 per cent difference between list price and sale price.
2. Acreage Property, Nashua. Listed in February 2020 with a price guide of $1.29 million to $1.41 million. Sold in April 2020 for $1.08 million, a difference between price guide and sale price of 16.3 to 23.4 per cent. ]
3. Duplex unit, Byron Bay (under contract). Listed in February 2020 with a price guide of $1.1 million to $1.2 million. Price guide adjusted in April 2020 to $995,000 to $1.065 million and is now under contract for $1.02 million, a difference between February price guide and sale price of 7.2 to ten per cent.
Buyers and sellers should not be alarmed by these examples, but they should be alert to the fact that some properties are selling at prices well below the seller’s expectations.In the current market, sellers should be keeping right up to date on what is happening in their locations and be prepared to listen to the market rather than their hearts. Buyers too, need to do their research, as there appears to be the opportunity to purchase at the lower end of some sellers’ price expectations.
The bottom line is that there appears to be increased volatility across the market and at the moment, residential property can be expected to sell within a wider than usual price range.
Buying a property at the lower end of the price range increases the opportunity to renovate for profit. Renovating for profit is, however, traditionally fraught with danger due to cost overruns, over capitalising and market movement. It is best left to experienced renovators; novices need to tread carefully. The Byron Shire is largely established with only a small number of residential estates offering new builds in the hinterland localities of Mullumbimby and Bangalow. There are many older units and houses in beachfront towns and hinterland localities that could be described as ripe for renovation. Well-renovated character homes (timber houses from 1900 to the 1960s) are particularly desired in the market and could be targeted by a buyer renovating for profit.
One of the more fashionable and profitable ways for owner-occupiers to add value to their properties in recent years has been the addition of a second dwelling or studio to their land. The construction of a council-approved, self-contained bungalow or studio in a backyard has given many Byron Shire residents a steady income stream or somewhere for the extended family to live. Notwithstanding the current over supply of rental properties brought about by COVID-19 (see last month’s Month in Review comments), there has been a shortage of properties to rent in the Byron Shire over the past few years and many homeowners and investors have sought to capitalise on this with a bungalow or studio addition.
Typically, a small two-bedroom studio or bungalow will cost around $175,000 to build, all in. It will rent (depending on location) for approximately $375 per week or $19,500 per annum, gross rent. While you still have to factor in increased mortgage payments, management fees, vacancies, insurance premiums, etc., this represents a gross return of 11% on your investment.
So, who wants to build a bungalow in Balgalow?
Clarence Valley Property Update
Feedback from the market is that sales volumes are down, enquiry is down and holiday rental demand is down. Agents are reporting that some have taken their listed properties off the market, previously listed holiday properties are being leased out permanently, adding more supply and reducing rents. Agents are noting though that they are seeing less volume, there are more quality enquiries for sales properties. Value levels seem to have remained relatively stable until now.
Prior to the Coronavirus, renovation was quite strong in the area due to the market rewarding updated, well-presented properties. Renovation works are expected to be less common due to the Coronavirus. Renovations may occur in the main parent home as children lose their jobs and want to return home under the safety of greater equity held by their parents in these uncertain times which have negatively impacted employment. Due to the current uncertainty, those with financial resources are more likely able to renovate however working people with a mortgage may decide to defer spending money on renovation due to uncertainty about employment and secure income.
Investors likely are holding off renovating until such time as employment and tenants are in a stronger position to support payments of rent. Saying that, bank interest rates are still low and the area is seen as a long term growth area due to the new highway under construction and new jail. Renovations are likely still viewed positively by the market, particularly to out of town buyers from capital cities due to their more secure employment and income. Renovation work in Grafton and Maclean on older style dwellings around $250,000 to $300,000 are not uncommon and some added value is expected to be rewarded by the market, although there are likely some Heritage issues to contend with in these areas. In the future, renovation work may likely be reduced due to the uncertainty around employment, expendable income and secure tenants.
Coffs Harbour Property Update
One month on from the start of the COVID-19 restrictions and we are seeing some light at the end of what may prove to be a long tunnel. The market surprisingly has not come to an abrupt halt; more so, it has taken a cautious approach. We have experienced a distinct lack of supply of properties for sale with the property section of the local weekend paper becoming significantly smaller, although demand has not appeared to have dropped with supply. This has caused values to remain relatively firm with some noticeable good prices being achieved in areas where supply is down. The rental market also appears to have held up relatively well; although some holiday rentals have switched to permanent, there is no dramatic oversupply and no sign that rental values are falling
Given there are no active cases within the area and restrictions are slowly being lifted, the general feel is of positivity with the expectation that once domestic travel is given the green light, the Coffs Coast will be seen as a very attractive place to come for a holiday, giving the local economy a much needed shot in the arm.
To renovate or not to renovate is an age old question. We have seen in recent years the modern generation’s appetite for new homes with a significant push towards new estates and building the dream. As land is becoming scarce within the region (with a lack of new estates coming onto the market), we are definitely seeing a move towards renovations and extensions, especially within well-established suburbs where vacant land is no longer available. Typically, these are the more sought after locations close to the beach and town, however renovation activity is not isolated to one specific location.
We have seen many DIY home improvements over recent weeks thanks to COVID-19, however these are more your catch up on general maintenance items rather than full blown renovations. We have seen building costs increase significantly over the past four years as increased demand for construction of new products and renovations has seen builders and trades stretched thin within the region. People’s expectations of the cost of renovations or extensions are often well undercooked and depending on the degree of house improvement proposed, we are regularly seeing renovation costs in excess of the cost to demolish and rebuild a new home. An average renovation cost for a four-bedroom, two-bathroom home to upgrade the kitchen and bathrooms, floor coverings and painting would start at $50,000 and up depending on the quality of fit-out. If we then start adding internal remodelling of floor plan, additional outdoor living, extensions etc, we are now talking $100,000 plus with major rebuilds often being in excess of $300,000 and if talking prestige homes $700,000 plus may not be out of the question.
Examples of an area where renovation works are becoming part of the norm is the popular beachside suburb of Sawtell, dollar for dollar one of the most expensive areas in Coffs Harbour. To compare, we have examined some recent sales in Circular Avenue, a well-positioned street within walking distance of the main village precinct.
77 Circular Avenue is a very modest original 1970 brick home with three bedrooms, one bathroom and single garage set on 531 square metres. It sold for $700,000 in January 2020 which represents predominantly land value.
In February 2020, 88 Circular Avenue sold for $1.04 million (a record street price). This is a fully renovated 1970s rendered brick home with four bedrooms, two bathrooms and double garage set on 663 square metres.
This property sold at auction with high demand and a price achieved above expectations, however when you compare it to 77 Circular Avenue, it represents good buying. To achieve the same product on 77 Circular Avenue (notwithstanding a slightly larger lot size), the cost to renovate and extend the modest 1970 three-bedroom home to a four-bedroom, two-bathroom home would be in excess of $350,000 which would result in a total cost of $1.05 million plus the time and effort undertaken to achieve this. In this case, it makes sense to buy the already completed property.
The main rule to renovations is to understand the added value of the cost of renovations and not to overcapitalise for the locality. This is easier said than done and all depends on the underlying land value and the purpose and scope of the works, plus factor in whether it’s as a homeowner or investor. The homeowner who has decided that their current place of residence is their forever home can afford to over capitalise to achieve the lifestyle benefits they desire within their budget. However, the investor should be shrewder and consider factors such as cost versus added value and only renovate areas that are required or value add by increasing rental return. This could be in the form of secondary accommodation (granny flat) or reconfiguring the current space to provide additional bedrooms.
One point should be made when undertaking remodelling or conversions within the dwelling is to seek council approval before you start the project. One of the misconceptions with owners is that council approval is not required for conversions or reconfiguring internal walls so long as you stay within the current building footprint (that is no extensions or additions). This is incorrect; any moving of a wall or conversion of a garage etc has to be approved by council. If you undertake any improvements of this nature without approval, for all practical purposes, no one knows so who cares? However, the ramifications come when you wish to sell the property or need a valuation for mortgage security purposes; any works undertaken without approval will not achieve the full value. Even more so if you have converted the home into dual accommodation and rent separately for investment purposes or live on one side and receive rent in the other. This extra income will not be included in a valuation for mortgage security purposes as it is not council approved. This is critical when you require the extra rental to be included in your loan application to prove you can service the repayments, not to mention the insurance implications if an accident occurs. It is difficult to say what people should or shouldn’t do when it comes to renovation.
Our best advice is to seek the experience of your local Herron Todd White valuer to navigate and guide you through the market in your local area.
Speak with a Coffs Harbour Mortgage Broker today.
Southern Highlands Property Updates
Covid 19 Update
Another month into COVID-19 restrictions and how is the local real estate market faring?Well as mentioned last month, rental enquires as well as sales have been strong according to many local agents. Most agents are reporting that the private inspection only approach to viewings is working very well for agents and prospective purchasers, as it allows for both parties to feel a bit more relaxed rather than experience the typical madness of an open home.
Overall we are seeing consistently good sale prices across the board, particularly within the rural residential space. The standard sub-million residential markets are still moving, just at a much slower pace. This is possibly due to purchasers in this price range being the most likely to be impacted by the ongoing and uncharted economic waters in which we currently find ourselves.
Given the lockdown guidelines that have been in place over the past six weeks, many people have taken the opportunity to start those little jobs around the house they haven’t had time to begin…. or finish for quite a while. So are we seeing a rise in the amount of home renovation in the local area?
The short answer is that it appears to be fairly steady as far as major renovations such as kitchens, bathrooms, decks, etc however we are certainly noticing a rise in smaller cosmetic works including paint jobs, landscaping works and general tidying up.
As far as major renovations within the local economy, we haven’t seen the bottom to middle range of the market achieve outstanding capital gains from buying and renovating since the market peaked in mid 2017. We do note that as always we have seen good scope for capital gains on good quality homes in good suburbs and streets that are being renovated to an extremely high level of finish. These properties tend to appeal to local or Sydney based downsizers looking for high quality product in blue ribbon locations on sub 1000 square metre blocks that are easier to manage than the larger traditional homes. We also notice a strong market for rural residential properties that have also been renovated to an excellent standard as well as the addition of good equine site improvements which appeals to the Sydney market looking for a hobby farm with good access to the city.
As affordability goes, we consistently hear the phrase Highlands tax from home owners and investors alike when talking about the cost of local tradespeople. Due to this, we are seeing owners bring trades in from Sydney or up from Goulburn in the hope of getting a more cost effective job done, but remember you get what you pay for and as always the importance of seeing a tradesperson’s work before hiring them based on price is as important as ever.
Going forward we believe it’s likely that the renovation market will retain the trend of seeing good quality renovation achieving the price point it deserves.
Albury-Wodonga Property Update
The property market in Albury-Wodonga and surrounding region on both sides of the border appears to be holding quite well. The cases of COVID-19 have been very, very low and the community has been adhering to all pandemic measures. Most agents are reporting a hold and wait type behaviour across the board, which resulted in significantly reduced sales activity for April and May, with an uptick in this third week of May as restrictions ease and the reopening of schools is now approaching for both New South Wales and Victoria. With the number of final inspections on new homes and construction reports on proposed new dwellings increasing, we will continue to observe and analyse the likely effects on the tourism industry and the investor market in our region.
If the carpark at Bunnings is any indication, home improvement has been front of mind for many with the expected result surely being property of all types receiving TLC, running second only to the amount of extra dog walking being witnessed across the country. Pre-pandemic vendors making the extra effort in property presentation were certainly reaping the rewards, so post-pandemic we might be set for a very good looking property offering in spring with gardens spruced, DIY updates of bathrooms and painting refreshes creating the longest lines at home improvement centres.
Overall the renovation market in our area is quite targeted, due to property owners’ mobility in the market created by our housing affordability. The risk of over-capitalising property is real if the price point and location are not spot on. The house flippers are mostly purchasers with skill sets to renovate on a budget and this has been very evident in North Albury reaching further north now to Lavington and also parts of south Albury. The other active market segment for renovations are high end additions and renovations of character dwellings in central, small pockets of North Albury and all of old East Albury. With only a select few master builders available, waiting times for these projects can be expected, up to two years for some builders, so substantial planning and patience is required in these good locations.
Renovation is not for the faint-hearted and the decision to renovate may sit below upgrading to a newer home, moving to a better location, building from scratch or demolishing and rebuilding. The rewards are there for the very astute home owner or investor, however regional cities do not enjoy the same capital growth as the metropolitan property markets, so often a smart update rather than a full renovation can assist owners to enjoy some uplift to take the next property step or secure a better tenancy.
On inspection, we often hear the lamentation that home improvement takes money and time and striking that balance can be challenging. Hopefully over the past couple of months property owners have had the time and been able to save some money by taking on projects themselves or calling in the professionals.
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.