Regional VIC June 2017

The month in review: Regional VIC

By Herron Todd White
June 2017

Bendigo is full of properties suitable for renovation. The region is strewn with heritage dwellings dating back to the 1850s and 1860s and every decade thereafter. Renovation is most common by owneroccupiers in the inner suburbs of Bendigo. With urban sprawl, inner CBD property is becoming increasingly sought after with properties in good locations being quickly absorbed by the market.

The most common type of renovation is the purchase of a 3-bedroom home around the $250,000 mark between two and four kilometres from the CBD, completion of basic renovation works and selling for low to mid $300,000. Key drivers in added value include the addition of an en suite to the master bedroom, the addition of an extra bedroom or creating modern living spaces such as open plan living in older homes.

Unit renovation is occurring in the market primarily by investors seeking maximum rental return.

Capital value is not greatly improved however tenant appeal is greatly increased upon completion of a basic renovation.

Over capitalisation of renovations in areas not highly sought after by the market is the biggest error of renovators. Areas such as Long Gully, Ironbark and Eaglehawk are examples of where these types of failures are most prevalent. Areas where basic renovations are working are primarily inner suburbs such as Bendigo proper, Golden Square, Strathdale and Kennington. Certain areas within Bendigo proper such as Barkly Street, Wattle Street and Valentine Street are at the top end of the residential market. These properties require high quality renovations in order to achieve the best results. We are seeing buy in at around $1 million with renovations ranging from $250,000 and above returning results as high as $2 million.

In order to successfully renovate and profit a buyer must understand the current property market including the intended target market, have a clear vision of what they plan to achieve, stick to budgets, maintain time frames and be realistic about selling prices.

Renovation is generally completed in the lower market segments where the finished product will be at an affordable rate while not competing with new stock. Interestingly there has been limited demand for centrally located properties to be renovated with most older residences being demolished to make way for new builds. Longer term investors have also been known to renovate (including bathroom, kitchen and a general spruce up) basic dwellings in reasonable locations with a view to achieving a substantially higher rental based on a long term hold. This approach has been relatively good based on strong rental demand at the current time.

Care needs to be taken in many instances not to over capitalise in upper market segments in order not to compete with new housing stock albeit in secondary locations.

The interest in buying and renovating residential properties has been increasingly popular within the Horsham market due to two main driving factors: housing affordability and the increasing popularity of home renovation shows.

The renovation sector is dominated by owneroccupiers, using this opportunity to enter the property market and slowly develop a house into a home. Investors generally do the bare minimum to a property, only making it attractive to prospective tenants.

The Horsham West area is becoming increasingly popular with buyers, due to its many older style homes that provide an opportunity to be renovated. If done to a tradesman like quality, these can achieve greater returns if looking to on-sell.

While it is an increasingly popular pastime, renovators looking to on-sell a property must always keep in mind the current market conditions and be sure not to over capitalise in order to recoup the cost of the renovation.

There are many first home owners and investors looking to purchase original or dated properties in order to benefit from capital gain on resale in the Gippsland region.

Closer to the CBD is always preferred, however renovators also have to compete with developers who wish to subdivide and build multiple units. There are also areas in major towns such as Traralgon, Sale and Warragul where purchasers are seeking original homes to renovate. There seems to be less stock in these particular markets, where marketing times are considerably shorter.

Most renovations we see include complete internal refurbishments of kitchens, bathrooms, floor coverings and painting. Removing walls can be an easy way to modernise houses, with open plan living being what the market seems to desire.

Unit renovation can definitely see increased rental returns, especially if the unit is in a location close to the town’s CBD. Younger renters will always prefer a renovated property.

There are renovation projects that don’t work however, where owners either over-capitalise (spend more than their expected returns) or have a somewhat different taste in style.

Mildura was established in the late 19th century as an irrigation colony and then expanded following World War I as a soldier settlement area. The original settlers had very limited resources and as a result, much of the initial housing was of only basic standard. Many of these early homes were either eventually demolished to make way for better standard homes or lack the character desired by people wanting to renovate them.

Fortunately there are a small number of better standard character homes and these have mostly now been restored. Most owners have completed the restoration with the intention of living in the home and so there is little re-sale evidence available. There tends to be solid demand for restored, character homes within one kilometre of Mildura’s CBD and appealing homes will generally sell well. One recent example is a pre 1950s home in Tenth Street, Mildura, purchased in an unrenovated state in 2009 for $185,000 and then extended and extensively renovated prior to sale in April 2017 for $640,000.

While there are few remaining opportunities to renovate older homes, there is potential to make a small profit from upgrading homes built between 1960 and 1980. The advantage with many of these properties is that they are in relatively central locations and usually have land sizes over 650 square metres. An unrenovated home of this vintage in one of Mildura’s better west side locations will likely cost around $225,000 to $300,000 to purchase, depending on its size, condition and extent of ancillary improvements. The presence of good natural light and reasonable room sizes are important things to look for.

Recommended works include renovation of the kitchen and bathrooms, replacement of floor coverings and the addition of a good standard outdoor living area. It’s also important to complete appropriate landscaping works.

There is also potential to renovate older homes on 2,000 to 4,000 square metre rural residential allotments scattered throughout the surrounding rural areas of Irymple, Nichols Point, Cabarita and Birdwoodton. There is consistent demand for a better standard of dwelling in rural areas, particularly if located within ten kilometres of Mildura.

Buyers of these properties will be attracted by good landscaping and shedding in addition to the standard of the dwelling.

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