Sydney June 2017

The month in review: Sydney

By Herron Todd White
June 2017

Sydney’s renovation boom is still in full swing, with a number of home owners seeking to add value to their current properties rather than upgrading in the midst of a listings shortage. The renovation option is well suited to a number of participants such as growing families needing extra space either for children or older relatives moving in or investors wanting to capitalise on the current housing boom. For those owners who decide to cash in and move on, quality renovated properties are attracting good premiums at present. This has resulted in the more experienced renovators realising good profits leading to strong levels of confidence in the wider renovation market. Popular renovation areas within the eastern suburbs include the beachside locations from Bondi Beach to Coogee in addition to the more traditional heritage areas of Paddington, Woollahra and Queens Park.

Popular renovation areas within the inner west include Newtown, Erskineville and Balmain.

Renovations of both units and houses are proving popular within these areas particularly with units in the $1 million to $2 million range and houses in the $2 million to $4 million range. Strong demand is being shown for renovations completed to a high standard with high quality fixtures and fittings. These quality renovations, which often might stand out from others on the market, are attracting the owner-occupier who falls in love with the property and are seeing premium prices being achieved. Properties that have retained and restored some of the heritage and period features to units and houses in keeping with the suburb’s character are also seen to attract strong demand. Owners are time poor and are willing to pay extra if the renovation is completed to a high standard rather than undertaking the work themselves.

Popular renovation areas in the west include suburbs that have been around for 20 years plus with multiple dwellings in need of a revamp. A recent example is a house in Beaumont Hills which sold in original condition (built 2001) for $1.05 million in February 2016. After updating the kitchen and flooring throughout and a modern paint job to the exterior, the property achieved an uplift of $185,000 in 12 months, selling for $1.19 million in February 2017. A nice little earner.

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It’s been hard to make too many mistakes buying property in these areas over the past few years however generally some renovation mistakes may include: the quality of renovation; colour schemes or fixtures and fittings that don’t match with the style of the suburb; unconventional floor plans and design failures; and not choosing the right building to renovate. One of the biggest mistakes a renovator can make is to over capitalise. This is more common in suburbs with lower price points where even minor blowouts in budgets can result in an over capitalisation. The best way to ensure this doesn’t occur is look at any examples of the end product that have sold in the local area. If sales of renovated properties are within a certain price point it will give you a target and assist your budget to ensure the project will stack up.

With the popularity of renovation shows on television, more and more people are trying to jump on board. Channel 7’s ‘The Aussie Property Flippers’ program recently featured a property in Sydney’s eastern suburbs located at 4/61 Fletcher Street, Tamarama. The small 2-bedroom, 1-bathroom unit (58 square metres) was purchased in February 2016 for $780,000. With a renovation cost of approximately $80,000 (advised on the show). The property sold in December 2016 for $1.065 million.

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In Sydney’s CBD a 1-bedroom, 1-bathroom unit with 1-car space located at 49/177-181 Clarence Street Sydney (circa 1890 Victorian building) was purchased on 26 February 2016 for $710,000. After full renovation to a high standard it sold in April 2017 for $1.13 million.

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Within the southern areas of Sydney, renovations have also proven popular with both owner-occupiers and investors, particularly in the beachside areas of Cronulla and Sans Souci. Units, townhouses, villas and detached housing in the $750,000 to $1.5 million price range have been popular with renovators. Having proximity to the beach provides great potential for a profit.

Similar to the eastern suburbs and inner west, owners in the southern areas of Sydney undertaking very basic quality renovations are not seen to be doing as well as those who undertake more extensive renovations to capitalise on the buyer demand. The strong market conditions over the past few years has also been a major factor in not only the profits made but also the confidence of the people undertaking renovations.

Sydney’s prestige market has seen home owners seeking to add value to their own properties rather than upgrading in the midst of a listings shortage. There is fairly limited evidence of flipping within the prestige market as the purchase prices (including transaction costs) mean there are less people willing to take the risk. One known example is a property located at 55 Suttie Road, Bellevue Hill in the eastern suburbs which was purchased on 23 December 2015 for $3.9 million. After a good quality cosmetic renovation, the property was resold on 15 November 2016 for $5.75 million.

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The renovating option is a wise decision in the current climate in Sydney. Interest rates are historically low for owners borrowing money to renovate and additionally, if the house has been owned for a number of years there should be equity that can be accessed to complete these works if required. Also with the rapid rise the market has seen in the past few years, renovators have experienced a dual uplift from both the wider market and the new improvements.

The costs associated with the alternative can, in some cases, outweigh the benefits. Buying a larger or more modern home will include additional expenses such as stamp duty which can run into to the tens to hundreds of thousands of dollars depending on the value of the home. This alone may deter many home owners who love the suburb they live in but just need a larger or better configured property to suit their requirements.

Extensive renovations are less common in locations further from the CBD such as south-western Sydney (areas such as Liverpool, Fairfield and Campbelltown LGAs). As this market is more heavily driven by investors, renovation works are usually aimed at cosmetic works or creating additional areas of occupancy which will ultimately have more impact on the rental return being achieved. Granny flat construction is quite common as the higher than average rental returns can be appealing to investors.

30 Craig Street, Smithfield is one example of a property purchased in original but poor condition in February 2016 for $575,000. The property was fully renovated, slightly extended and reconfigured to include an additional fourth bedroom and bathroom. This property sold in March 2017 for $860,000. While extensive renovations are not quite as common in these locations, it does indicate the potential if renovation works are carried out correctly to meet market demand in the area. This example represents an approximately 50% value increase in just over 12 months, albeit market growth had a big part to play in this overall increase.

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It is likely that these types of renovation projects will become more common in the future, however currently owner-occupiers are more likely to buy new house and land packages or a complete rebuild on their current land rather than carry out extensive renovation works.

Renovating in recent years has generally paid off and minor mistakes are somewhat mitigated by the increasing capital values. Given that the market appears to be slowing in some areas, it’s likely that these renovation mistakes are more likely to be realised, particularly if interest rates are to rise simultaneously. Furthermore, it will be interesting to see if any other recent federal budget changes or continued APRA regulations have an impact on renovation decisions, particularly within the investment-driven property markets of southwestern Sydney.

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