Regional QLD June 2017

The month in review: Regional QLD

By Herron Todd White
June 2017

Renovation has always been popular in the Toowoomba region, particularly in uncertain financial times when owners possibly feel safer investing funds into their own property rather than buying or building a new property. With the large supply of housing currently at hand and some cases of reduced prices, owner-occupiers could however consider buying into a newer property instead of renovating.

The Toowoomba renovation market is dominated by owner-occupiers. The costs involved in renovation work don’t always add up to bring in reasonable returns on capital for investors. There is also usually little tax incentive, with most renovation work falling under capital works.

The market for potential renovation projects is quite broad across the Toowoomba area. Older character style homes in the circa 1900s to 1940s range have always seemed popular to buyers looking for a renovation project. These homes predominantly are character timber with detailed decorating throughout, high ceilings, timber floors and VJ walls. Such a property can potentially make good returns if it is purchased for the right price, however these are difficult to find. The majority of this product type will be found in close proximity to Toowoomba’s CBD in areas such as south, east and north Toowoomba and Newtown. Further out from the CBD, Centenary Heights, Rangeville, Mount Lofty and Harristown have also seen many renovation projects. The majority of this renovation work has been carried out on circa 1960s to 1980s houses of chamfer on brick and brick veneer, timber floors and slab on ground, generally more standard type housing.

Typically, areas further from the CBD are characterised by modern housing. As a result there is less demand for property to be renovated.

There tends to be a general perception that if a dwelling is dated, particularly internally, then it is in need of renovation work. The general market has higher expectations of living conditions now than in the past. These expectations could be a result of the exposure we all have to the building and renovation reality TV shows. This could be factoring in the thought process of a potential buyer inspecting a property listed for sale. The right price would have to be paid for a property to then renovate without over capitalising.

Care needs to be taken when considering the true costs and time it takes to renovate – it could be argued that this is portrayed inaccurately on the television.

The most common renovation works carried out on a Toowoomba house are new kitchen, bathroom and laundry, floor coverings, light fittings, internal and external paint, rendering external walls if applicable and outdoor areas such as decks and landscaping.

With the amount of new unit product that has recently come to the Toowoomba market, renovation work on an existing unit is not a viable option for investors or owner-occupiers. The unit market has generally seen a reduction in prices and yields and it would be difficult to recoup funds spent on a renovation project. Even renovation of a unit in a more sought after location where infill unit development is present could prove risky to pursue.

The current Toowoomba market in most cases does not reflect large gains on renovation projects. Some locations and property types may in fact show a loss, some may break even (dollar for dollar) and some may show small gains. There are many factors contributing to this such as holding costs, transfer costs and labour costs. For example, a property of average dated condition in south or north Toowoomba can be purchased for circa $250,000. If $70,000 is outlaid to renovate the property, there is a good chance that the final market value could fall within the $320,000 to $340,000 range. This does not take into account the buying, holding and selling costs.

Overall, it is difficult to find a renovation project in Toowoomba to make substantial gains.

The renovation revolution is an element of the Ipswich property market, however by no means a dominant activity. The majority of renovators are owner-occupiers.

Owner-occupiers choose mostly pre-war character timber housing as a project for renovation, while investors actively renovate various property types, typically with a view to enhancing rental return in the short term however, essentially with a view to enhancing value and marketability of the property.

Ipswich is a price sensitive market and accordingly home owners should be very mindful of expenditure versus added value. For that reason the majority of renovations in this location are limited to painting, a new bathroom, new kitchen and floor coverings.

With the low price point of units in the Ipswich market, it is somewhat difficult to undertake renovation projects with a view to capitalising on works completed.

The suburbs of Ipswich that contain a number of character dwellings are typically the most popular and more highly regarded areas in which to undertake renovations. These include Woodend, Saddliers Crossing, East Ipswich, Newtown and Ipswich Central. The most prudent approach is to undertake renovations that enhance the presentation of the property. For example some minor carpentry work and painting can convert a residence with enclosed verandah to something that resembles a typical character dwelling that is very welcoming and has enhanced street appeal. Painting throughout, floor coverings and modern kitchen and bathrooms are always the best for achieving capital value improvement.

We would however recommend staying away from locations that do not typically attract renovators and that generally comprise dated or original housing. It is difficult to achieve top price for your renovated property when so many around you are well below the standard. This often leads to over capitalising.

The most important component of buying and renovating, particularly in a price sensitive area such as Ipswich, is the purchase price. Astute buying is so often where risk can be somewhat nullified to place yourself in the best possible position.

Sunshine Coast
Being a coastal area, beachside localities are always popular with those looking to renovate to cash in on the improved values on the coast. Typically older areas can be found around the original council centres of Caloundra to the south, Maroochydore to the centre and Noosa to the north. Typically the main driver of gentrification is that these older areas are well located and close to amenities and the beach, thus creating demand for these locations for people to live. Another driver in these areas is the lack of available vacant land which has forced buyers to look at older homes that require renovations as an alternative.

In Maroochydore, areas around the current and proposed town centres are in demand. Typically these are 1970s to 1980s vintage houses at an entry level of circa $550,000. Throw in some dollars and some nice design features and $650,000 to $700,000 should be achievable for a well presented property. Other areas of Alexandra Headland, Mooloolaba and Cotton Tree down on the coast and Buderim up on the hill have been going through this gentrification process over a number of years.

Up north in the Noosa region, the areas in Sunrise Beach, Sunshine Beach, Old Tewantin near the river and town centre and also Noosa Junction are seeing a significant number of renovations and re-builds. Once again, being close to shops, cafes and beach or the river are the biggest attractions.

This type of gentrification has been restricted mainly to housing however we have started to see renovations of older walk up style unit complexes. The risk with these renovations is that if the body corporates are not in the position to do extensive works to the exterior of the building, it may detract from the renovation internally and therefore may not achieve the desired result.

The majority of renovations are being completed by owner-occupiers who want to create their dream home but are looking to stay in their current location which may be close to schools or the beach. Investors on the other hand choose to complete renovations to maximise their returns with the added bonus of depreciation for tax purposes. One of the risks for investors is that they may over capitalise and therefore not obtain the desired returns.

We have seen over the past 12 months that wellpresented properties with good quality renovations are attracting a premium, as purchasers are looking to move into these properties with nothing to do. However, these properties have mostly been along the coastal strip where demand outweighs supply. One example in Buderim was a property purchased for around $650,000. The owners undertook a reno of approximately $150,000 with the renovation improving the layout of the floor plan and targeting the big ticket items such as the kitchen and bathrooms. On completion the property is anticipated to obtain $850,000.

When looking at the hinterland townships, renovation and more importantly extensive renovation become harder to predict as these areas are not keeping pace with the coastal areas and therefore the cost to complete may not add the same value to the property. These types of renovations are done as a lifestyle choice rather than an economic decision.

Unfortunately the adage of renovating for profit is not applicable in the Rockhampton residential market at present. Although there is some positivity in the air, this has not filtered through to sound evidence of a residential market on the march. Hence, what we are witnessing in this market is that most renovations are done by owner-occupiers renovating to make their home more comfortable to live in.

The typical profile of these owner-occupiers are those who have owned their home over a long period of time and now have access to equity, or those with access to enough cash for the renovation.

The homes themselves tend to be older Queenslanders or mid-high set dwellings. The older houses are favoured by owner-occupiers who use the lower price point of a renovator as entry into the market with a view to improving or extending at a later date.

Very little renovations are being done to units at present. The added benefit of renovating a unit in this market just does not add up.

Houses which fit the bill for a renovation can be found in any of the older suburbs, however prices do vary and the more premier suburbs such as The Range, Wandal and parts of Allenstown are fetching prices in the low to mid $300,000 range. These are generally purchased by owner-occupiers. Investors tend to enter the market at lower price points with some recent sales fetching mid $150,000. These sales have occurred in the suburbs of Depot Hill, Park Avenue and Berserker.

There is very little recent evidence to demonstrate that the added value of a renovation is equal to or greater than the cost of the renovation. The marginal benefit in terms of value by extending a dwelling through addition of an extra bedroom or a deck is greater than that of upgrading a kitchen or bathroom. However, in this market, it’s highly unlikely that either will improve the value of the dwelling by more than the cost of the renovation.

In essence, the focus of renovations in the Rockhampton area has been more on improving the comfort level and utility of the dwelling followed by improving the marketability of the dwelling, rather than renovating to make a profit.

In years gone by, renovating a house in Gladstone has been a risky venture. More often than not, in the space of time a property owner was completing renovations, the market was still dropping and once renovations were complete, the property was worth the same if not less than prior to the renovations being completed. Needless to say, very few property owners have completed major renovations over the past few years. In most cases in the current market, minor renovations will increase the marketability of the property however will not add value anywhere near the cost of the renovations.

Like most of Australia, purchasing a fixer-upper and renovating is a popular past time in Bundaberg. A common consideration for property purchasers during the decision making process is what value adding changes could be made to the property. There is no substantial evidence that suggests the renovating revolution is dominated by owneroccupiers or investors as both types of purchasers are reasonably active within the Bundaberg property markets.

The Bundaberg market has a relatively low buy-in cost compared to other locations around the country, with no particular localities within Bundaberg appearing to be attracting a renovation revolution. This is due to the absence of any significant capital growth within the Bundaberg market over the past five to ten years. It’s difficult to affirmatively state that major renovation works in the current market would result in an overall profit for the renovator.

At present, a popular choice for renovators is to purchase a low end investment property to renovate in order to increase the rental income potential of the property. A common mistake amongst renovators is over capitalising. A good tip for renovating in the Bundaberg market is to only put into the property what the market will return to you. This will avoid over capitalising and potentially losing hard earned dollars. Get advice from a qualified property valuer on what your market would judge as over capitalising.

At present we are starting to see a market for well renovated product, which can be anything from low set 1950s cottages to high set butter boxes right through to 1970s and 1980s brick dwellings getting the full modernisation treatment. The price point for these renovated properties is around mid $300,000s up to mid $400,000s. There have been sales over the mid $400,000s however these are usually larger dwellings and renovated to a high standard.

The key to this market is price point. The majority of renovated dwellings hitting the market were purchased during the downturn, when older style cottages in need of TLC could be had for low $200,000s or less. Purchasing dwellings at this price then allows full renovations to be realised and generally the cost of these renovations can be recouped at resale. We have also seen semi modern dwellings built in the 1970s to 1980s being purchased, then fully renovated and returned to market. Again, these dwellings are able to be renovated and presented to market generally at prices just below new dwellings.

Hervey Bay
Renovations in the Fraser Coast region are becoming more popular for home owners looking to increase equity in their home. Over capitalisation is always an issue with renovations. Owner-occupiers are the main drivers in renovations as investors look more towards new product housing where maintenance and operating costs are lower. The Hervey Bay market is generally seen as affordable and has a supply of circa 1970 to 1990 homes of varying styles, most of which are ready for some form of refurbishment.

For owners with the intention of turning over renovated dwellings quickly for profit, these are the more basic renovations with new floor coverings, window furnishings and a new coat of paint. This increases the appeal for minimal cost, however returns can also be minimal. For owner-occupiers looking to occupy the home for some time, a thorough renovation is more appealing. These renovations include new kitchen and bathrooms and look to increase the living area by either enclosing a built in garage to a rumpus room or another bedroom.

Some homes however are not suitable for renovation and a considerable renovation budget could lead to nominal return or a loss.

For example, attempting to modernise the 1970s high set hardiplank is difficult and over capitalisation can occur quickly with this style of home. Also poorly finished DIY work that is not fully completed can negatively impact appeal and subsequently returns.

The unit market has suffered over the past five years due to oversupply and limited demand. Refurbishment of units for a quick profit is limited as a consequence of the oversupply and most renovations in units are by longer term owneroccupiers updating fixtures and fittings.

Renovating is an option worth considering in Emerald. This has not been the case over the past five years as the market was continually dropping and the added value in the market was less than the cost of renovation works. However when the market in Emerald is on the up it’s often been worth considering renovation. At present good quality homes have firmed slightly in most areas, however poorly presented homes or properties where maintenance is required are still seeing depressed sale prices and bargains are still available. These properties are best suited to renovation work when you look at how much stronger a neat well presented property is selling. Most people who have purchased in the past eight years up until 2016 have no equity to borrow to renovate so this could only happen from cash saved up. Those purchasing or those who have purchased in the past six months in the sub $200,000 price range are best placed to consider renovating as the cost to renovate is more than likely going to be covered in added value to the property.

Renovation is not widely practised in the Whitsunday area at this point of time. There will however be quite a bit of renovating in the Whitsundays as property owners begin to undertake repairs of damage caused by Tropical Cyclone Debbie.

Although there was positivity in the air prior to Tropical Cyclone Debbie, the market has quietened for now however it is expected that this will change in the short term. Previously most renovations were undertaken by owner-occupiers renovating to make their home more comfortable to live in.

A subdued building market coupled with a soft property market over the past few years has seen an increase in renovation. It would appear that instead of owner-occupiers selling and buying in the current market, in some instances they are opting to engage readily available tradespeople to undertake extensions and renovations.

The renovation market is typically dominated by owner-occupiers, however we have seen the occasional house flipper in this sector over recent times. The older established suburbs within a five to ten kilometre radius of the city prove the most popular for renovators and are most likely to benefit from renovation compared to properties located in the outer suburbs.

Typical renovations being undertaken include new kitchens and bathrooms and painting. We’ve also seen a number of extensions, adding additional bedrooms or bathrooms. This type of renovation has become highly competitive over recent years due to the availability of tradespeople seeking work, a scenario very different from a number of years ago when the traditional building market was much stronger.

Overall, while the median house price remains soft, the cost of borrowing remains low and the building market remains subdued, we are likely to continue to see renovations occurring.

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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.