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Regional NSW June 2017
The month in review: Regional NSW
By Herron Todd White
NSW Central Coast
Some reasons for renovating are to make an income, improve the value of a property or overcome the need to shift homes, meaning the kids can remain at the same school and a longer commute to work can be avoided.
Closely aligned with adding value, those starting out with limited budgets or borrowing capacity buy in less expensive areas and carry out renovations to increase their equity.
Although not definitive, a good gauge of what stage the property cycle is at can be seen from the valuation requests we receive. We can analyse this from the property type and specifics of the request – for a new purchase, a change from one lender to another or funds required to carry out renovations or extensions.
Lately, there has been a slight increase in renovation or extension on completion assessments. This tells us the market cycle is on the move again and this generally follows a period of growth where values of home purchases are getting beyond many upgraders and a decision is made to stay and renovate rather than move.
We are seeing this growing in many parts of the central coast region.
From our perspective, we see more valuation requests received for owner-occupiers seeking funds to carry out renovations. We believe the reason for this is that owner-occupiers tend to spend more on renovations or extensions to improve personal comfort or functionality with the medium to long term in mind – think that often used term ‘forever home’. Whereas, investors usually spend less on make overs and use their own funds with the prime motivation of increasing the returns for as small an outlay as possible.
Properties available for renovation can be located close to the main centres or the beach and lakefront areas. They’re the ones advertised as having enormous potential, renovate or detonate, suited for tradies and similar. They can just as easily be located in those suburbs previously seen as undesirable but thanks to the strong market over the past few years, have proven affordable to new entrants in the market. Suburbs that spring to mind in this region include Narara, Niagara Park, Killarney Vale and Berkeley Vale.
Those closer to the water include Terrigal, Wamberal, Forresters Beach, Bateau Bay and The Entrance. There has been a noticeable level of renovating going on in these suburbs of late and we attribute this to the strong market paving the way for many to upgrade their locations.
While not seen in any way as undesirable, a popular area for renovators is The Peninsula part of our region. This includes Umina Beach, Woy Woy, Blackwall and Ettalong Beach. These areas have been going off over the past few years and have seen many renovations along with knock down and rebuilds. These areas have proven a gold mine for those who have owned property for a number years with extraordinary growth in values seen of late. Many have taken advantage of this growth and sold.
When considering the type of renovation being carried out, we again differentiate between owneroccupiers and investors.
Owner-occupiers seem to target high spec kitchens and bathrooms – nothing new there. However we are also seeing a number of new pools, new flooring, garaging, dedicated media or home theatre rooms, lighting and window furnishings. In other words, the things that make life more comfortable and to possibly set a point of difference over the neighbours.
Renovators by and large will target only the necessities which include a cost effective kitchen and bathroom makeover. Rarely do we see an investor spend a lot on their investment if the return ratio doesn’t justify it.
Readers will see that our talk so far has only referenced the housing market and the reason for this is that while renovation of units may be the norm in some areas, the central coast region doesn’t seem to have much unit renovation occurring. It hasn’t been entirely absent, just not something that is popular. Maybe as the new units being built now begin to age over the next decade or so, it may become more noticeable.
In our view, those suburbs which we feel have good renovation prospects include the older parts of Terrigal and Avoca Beach, Killarney Vale, Berkeley Vale and Bateau Bay.
The standout suburbs for the future for renovation projects include the northern end of the region at Gorokan, Toukley and Budgewoi but much of their success will depend on the market remaining strong. With current values in some of these suburbs starting from a base in the mid $300,000s, a strategic spend of $50,000 will put most of these properties in the $400,000 plus segment.
An important thought to bear in mind with a buy and renovate plan is location. As we have been leaning toward older suburbs with tired old dwellings the presence of some properties with completed renovations should be the centre of focus. Avoid the newer areas such as Woongarrah, Hamlyn Terrace, Wadalba and the newer part of Terrigal. These have newer dwellings with limited opportunity to renovate and make a worthwhile gain as housing is generally too new. That said, look hard and be business like as there are opportunities. Extending onto existing dwellings in addition to renovating may be necessary.
Research, planning, costing and execution are the key factors that will result in success or failure.
Research, research and more research is fundamental as this is the starting point. The other factors will depend on this first step.
NSW Mid North Coast
With the rapid population growth along the mid north coast there is rapid expansion and development of new residential estates in the major towns and coastal villages. However, most of these new estates are located on the periphery of the towns and generally aren’t centrally located or close to established services, shops and beaches.
So, if you wish to live close to the beaches or centrally within the towns, you will most likely need to purchase an older dwelling or unit and renovate.
We note that it is becoming more prevalent for existing landowners in these established and central areas to extend or renovate their existing dwelling, villa or unit rather than move out to the periphery of the towns and build a new home.
The renovation market in this area is dominated by the owner-occupier, although to a lesser extent we also have some development style purchasers buying older dwellings and units in beachside locations and renovating then on-selling, generally at a profit.
Renovation work in this region ranges from basic internal refurbishment of some of the older central units within the towns to complete renovations and upgrading of older dwellings close to the beach and rivers in established and well sought after residential areas.
Within the canal estates of Port Macquarie and Forster, we are also seeing a rapid rise in renovation of original and older dwellings. With no further canal estates being developed and most already fully developed, anyone wishing to live in these localities does not have a choice except to renovate if they wish to have a new dwelling.
NSW North Coast
With many older houses in original condition in this locality, the Lismore area is popular with renovators both for owner-occupation and investment. The lower price bracket of the older style original dwelling is particularly popular with first home buyers looking to get into the market.
The ideal property for renovation within Lismore would be an older style dwelling in a flood free location under $300,000, with original kitchen and bathroom and overgrown gardens and lawns. This combination makes for an easy renovation and the most dramatic overall makeover. Firstly get the yard looking tidy, update the kitchen and bathroom, paint internally and externally (where applicable) and finally look at flooring. Many of the 1960s dwellings have beautiful timber flooring hiding under the old shag carpet just waiting to be discovered.
A great example of this in Lismore is a 3-bedroom weatherboard property on Ballina Road. The property was purchased in September 2015 for $179,000. Completely overgrown with vegetation, the house was not visible from the street. It had an original kitchen and bathroom and the rear yard was in a similar overgrown condition to the front. The vegetation was removed and the house was gutted. A new kitchen and bathroom, plastering and polished flooring were installed, the rear deck was renovated and it was painted internally and externally. It was such a dramatic transformation (on an arterial road) it almost caused traffic accidents. The owners created a Facebook page to keep people updated with the progress. The property has just been listed for $389,000.
As Casino and Kyogle are small regional towns, they are generally not subject to the substantial vagaries of the property market experienced by larger metropolitan centres on the coast or main city centres. Hence, the capital gains or losses do not appear to be significant to the overall value of the property.
That being said, any reasonable capital gain in such regional towns is generally achieved through responsible renovation, i.e. renovations which are not cost prohibitive.
Most of the activity is generally in the domain of the owner-occupier and involves the overhaul of the kitchen and bathroom.
Typically, this can be achieved from the outset by buying well. This invariably means the house is in need of TLC and is within close proximity of the town centre or near the usual town services including schools and shopping centres.
One of the most popular avenues for renovation is the kitchen and bathroom, followed by a general tidy up of the interior and exterior. Other more enterprising options are to possibly create a third or forth bedroom if a particular older style house has a significant living room space and can be accessed without travelling through an adjoining bedroom.
Given the size of Casino and Kyogle, there is no real distinct suburban area that benefits more than another.
Caution needs to be exercised by wannabe renovators as the expected profit should not be unrealistic. If costs are kept under $10,000 to $20,000 for a combined renovation of the dated original kitchen and bathroom then there should be a similar or slightly higher lift in the overall market value of the property. Anything that improves the overall rent level will naturally be of interest to the investors.
One item of renovation that has been apparent in our experience is the casual application to exterior and interior paint over the original surface with no adequate preparation carried out prior to applying the new coat of paint. The result is that less than a year later, the paint begins to flake and becomes quite an eyesore. It is very important for exterior timber walls of older houses to be prepared correctly i.e. stripped and prepared, to ensure a quality surface finish that will stand the test of time and weather.
Units are a slightly different kettle of fish as there does not appear to be a significant demand for the older style brick and tile unit in Casino or Kyogle. However, any improvement in the interior from basic original to a tidy, fresh and semi modern living space would have a positive impact on the rental level…. just don’t expect significant capital gains and costs should be kept to a minimum.
Renovations that don’t work are put simply, anything that is over top in expense that doesn’t fit in with the overall nature of the property, for example a dated 1960s brick home with a high quality, modern kitchen and bathroom costing over $30,000 to install in an area with similar, dated houses is obvious.
Renovation in the Ballina Shire is not a particularly popular pastime, but is definitely present to a certain degree. The main renovation techniques are complete renovations of kitchens and bathrooms in an attempt to modernise the home.
The renovation revolution is not limited to investors, but can also be seen for owner-occupiers. On one end of the spectrum we have investors renovating with the purpose of trying to turn a profit, whether that be in rental return or overall market value. Then there are the occasional renovation attempts made by the owner-occupier purely for personal satisfaction.
Properties that are most targeted for renovation with the driving factor of creating a profit are older homes located close to town.
The close proximity to town has a greater appeal for resale with the attraction of local township vicinities. As you progress further outside of the CBD, your potential for renovation becomes less apparent, as you come across newer subdivisions of land and modern built homes.
The main renovation work undertaken to make a profit on any given home is targeted firstly at updating the kitchen and bathroom facilities. A change to the flooring may also be considered in an attempt to create an updated or more attractive appearance.
Unit renovation is most apparent in the suburb of Ballina, but is most commonly seen specifically in townhouses and villas. There is mixed interest in unit renovation across the Ballina Shire by both investors and owner-occupiers.
In Ballina, there are profit margins to be gained in older homes built around the 1970s. An example of this would be a recent purchase of one of these homes for $379,000, investing around $50,000 for renovation works and profiting by being able to sell it for upwards of $470,000.
There are no specific suburbs in the Ballina Shire where evidence of renovation has been anything but positive. It just depends on the current market that any given purchaser enters into. They need to be aware not to over capitalise, particularly when choosing to update a unit.
Renovation in the Byron Shire has been quite prevalent in recent times. The lack of land availability and increased prices of modern homes has directed purchasers down the path of renovation rejuvenation.
The exercise of renovation is not particularly dominant with investors, but can be seen more frequently with owner-occupiers. The market is not controlled by owner-occupiers however the renovation revolution certainly is.
The properties chosen by owner-occupiers to benefit from renovation are located closer to town. They are purchasing already established homes close to CBD facilities and undertaking minor or major renovation for their own gratification.
The opportunity for renovation is scarce the further you move away from the CBD as you tend to come across land opportunities or new subdivisions that provide minimum chance for people looking to benefit from renovation. Land opportunities (new sub divisions) are slowly rising and new subdivisions are increasing.
The renovation work for housing in this area in order to make a profit includes updating the kitchen, bathroom and the external façade. The option for renovation to units does appeal for properties built around the 1980s to 1990s. However as the predominant buyer of units is still investment driven in the coastal resort towns of Byron Bay, Lennox Head and surrounds, it is becoming less popular.
In terms of outlining suburbs that are more suited to renovation, we believe that profits can be made in Ocean Shores. There are properties in the $400,000 to $500,000 vicinity that with a little renovation are reselling for around $600,000. Whereas in Lennox Head, buying a property for around $700,000 and spending $200,000 to $300,000 in renovation costs will not guarantee a result of an over $1 million sale price. The coastal resort towns are not renovation driven in terms of capital growth due to an overall increase in cost of works (rate per square metre) as demand for building is so strong.
In the Byron Shire we are not of the opinion that renovations are redundant in an effort to create a profit margin, however it doesn’t necessarily make sense to outlay an initial investment of $800,000 in a suburb such as Lennox Head and then invest an extra $200,000 to see any sort of gain in today’s market.
The Clarence Valley
Renovations are rife across all property types in Yamba and Maclean. Owner-occupiers and investors alike are capitalising on the firming market sentiment and capital growth increases. With limited stock on the market and even more limited stock in truly original or renovate-able condition, all available stock seems to be being absorbed to the market. With rental demand expected to increase into the near future, many investors are looking to take advantage of a higher than average rental return and we are seeing dollar for dollar value realised in terms of the cost of renovations undertaken. Some renovators are even opting to build granny flat style accommodation (in addition to their primary residence) and rent out such accommodation to fund further renovations to their dwelling. As in any area, renovators should remain vigilant when it comes to over capitalising a limited asset. Overall, while consumer sentiment continues to firm the renovator’s market will likely continue parallel.
Over recent years the Coffs Harbour market has been dominated by retirees and investors. Both these market sectors tend not to want to renovate. The investor is looking for minimal outlay and repairs to maximise return as soon as possible. The retiree often is over all that or knows better. They have worked their whole lives and now just want something shiny and new.
Most renovation is within the owner-occupier market, with young families and professional couples looking to make a home and potentially add value. In addition there is a proportion of large solid late 1980s and 1990s dwellings in the mid-price bracket in established suburbs which are in need of renovation. These dwellings attract renovator owner-occupiers above new dwellings if there are other redeeming features a new dwelling does not provide, for example proximity to beach, views, large land area or proximity to services and schools.
The lower end unit market of Park Beach and other inner Coffs Harbour areas are flush with small dated unit product. Many of these units are small in size and cost of renovations to these units can be controlled tightly. Unit renovation will improve rental return potential and market appeal to purchasers. The same can be said for older cottages. The mistake is to over capitalise with too grandiose plans and over the top quality. These are examples of when the cost of the renovation can potentially exceed the added value. In the lower end of the market, the trick is to keep it simple. No mechanical pergolas to patio roofs, no excessive quality stone bench tops, marble tiling or European appliances and no structural variations.
Renovation to higher end property tends to be viable only when the location is prime, such as the beachside suburbs of Diggers Beach, Korora, Sapphire Beach, Emerald Beach, Woolgoolga or centrally located within the Jetty Precinct. Often the renovation of an older dwelling can be more expensive than construction of a new dwelling. Traditional floor plans and the large size of some older dwellings make renovations very costly and often the project is fraught with compromises which can result in the original vision unfulfilled or an unfinished renovation above budget. It is regular that these types of renovations exceed the added value over the short term.
The problem in the current peaking market is that construction of new dwellings and unit complexes is also at the peak with limited tradies available for renovations. The wait on materials is long and materials are at inflated prices. These factors can jeopardise the renovator’s potential for resale returns in the short term. This is why renovation projects appeal more to the handyman who can complete the work themselves or has connections in the construction business. Often the unrealistic costing or underestimating the timing of a project can be the pitfall of naïve investors looking to flip a house.
Renovation is most definitely a popular option within the Tamworth region with both owner-occupiers and investors taking part. It’s slightly more favoured by owner-occupiers due to the fact that they can chip away at things as they occupy the property rather then having to get it all done in one hit as investors do, or they miss out on rental income. Buyers are looking for older dwellings close to town which they can renovate and create capital growth, or just to be able to live in a comfortable house in a nice area.
There is no hot area for renovators within Tamworth as all suburbs are options, with personal preference on location being the defining factor.
There is a vast difference once you move out of Tamworth city and into the smaller surrounding towns such as Manilla, Duri, Kootingal etc. With land values lower by as much as 75% compared to Tamworth City it makes for cheap buying, yet with limited potential for growth. However, for first home owners and investors there are plenty of cheap houses that with a quick renovation can return a nice rental yield.
The most common renovations include removing walls to create open plan living along with a new kitchen or bathroom, paint and floor coverings. With options on offer such as Bunnings kitchens and bathrooms, it makes for reasonably cheap renovations that can add a lot to a property.
Unit renovation is an option however not a favoured one. The unit market in Tamworth is quite small and any renovations taking place are generally minimal i.e. basic kitchen updates and more often than not carried out by owner-occupiers.
East Tamworth is where the most gain can be made. With high land values and being an in demand area, a renovation of an older dwelling with fresh paint and fit-out can result in high gains ranging from $20,000 to $100,000 depending on the original condition and the final quality of the renovations.
Areas such as Coledale and some parts of South Tamworth and Hillvue do not overly benefit from renovations. These are generally not sought after locales where the market is driven mostly by investors who are after the high rental returns which do not get any better with a renovation. With little to no growth in these particular areas, investors often enjoy the high yield without spending the money.
Renovation has not really been popular or a driving factor in the Dubbo property market over the past 12 months. The market has seen demand for new builds out weighing demand for renovated dwellings.
There has been a steady supply of new blocks of land coming onto the market within new estates. Both demand and supply have been in sync and therefore there have been no issues with a lack of supply driving people into renovating.
The renovation market is driven mostly by owneroccupiers, including both the first home buyer and retirees. First home buyers are generally entering into the market on a budget and fixing up the property as they go. Retirees are renovating as they do not want to move, they like the location of the property and have friendly and supportive neighbours.
Central areas of Dubbo have been hotly contested by the investor market. This is due to its close proximity to the CBD along with flexibility of the R1 zoning, providing subdivision potential. This areas is driven by the investor market rather than owner-occupiers, with investors looking for dual occupancy potential with renovating the existing dwelling and subdividing and building another dwelling on the other title. The further away from the CBD, the less the demand and need for renovation. As the distance from the CBD increases, the zoning changes to lower density residential uses, making it harder for dual occupancy to occur. In addition, the supply of land increases further from the CBD.
Kitchens and bathrooms are the main works that renovators look at updating to make a profit. Investors look for dwellings with original Prime Cost items to complete a quick renovation (including kitchens and bathrooms) then selling again (also called flipping). A complete renovation is rare in the Dubbo market, however owner-occupiers will look at this if they are intending to stay in the property long term.
Unit renovations are very popular, due to no new flats or units being constructed within the Dubbo market. The current supply of units are existing/ aged, therefore the need to renovate is much greater than single use detached dwellings.
Older heritage style homes in central Dubbo on large blocks with subdivision potential have more appeal for renovationand could attract a good value once complete, as long as the renovation is completed to a high standard.
Renovation does not work in areas where prices are still at the bottom end of the property market. It is easy overcapitalise on these if you’re not careful. This can be seen in renovating poor quality housing stock in inferior locations. A big renovation mistake would be over capitalising on homes with expensive renovations when there are new builds nearby at a lower market value, along with renovating larger homes when the market has shifted to demand for smaller dwellings with less yard area.
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.