As Australia continues to recover economically from COVID-19, property prices across the country have followed suit, overcoming pitfalls experienced in 2020.
If you have an existing property and you’ve been following the market, you may be wondering if it’s worth trying to battle it out at the auctions, or simply renovate.
Let’s explore 6 key reasons why you may want to consider renovating your current property instead of buying in 2021.
1. Prices are sky high
Firstly, property prices, particularly in Sydney and Melbourne, are continuing to grow month-on-month. The latest CoreLogic Hedonic Home Value Index recorded an increase of 1.8 per cent in values for April 2021.
While this growth is smaller than the previous month – a 32-year high at 2.8 per cent – housing values are still rising rapidly, up 10.2 per cent from September last year. Which means if you currently have property that you’re not considering selling to fund the purchase of your next property, you’ll be battling it out in a red-hot market.
2. Interest rates are rock-bottom
Another benefit of choosing to renovate your existing dwelling is that interest rates are currently at record-lows thanks to the Reserve Bank of Australia cutting the cash rate to 0.10 per cent.
If you’ve built up some equity in your home, you may be able to refinance to one of these low interest rates and unlock this equity to fund your renovation. You will extend your home loan amount, but the savings you nab through a lower rate loan may be able to help offset your new mortgage repayments.
You may also be able to refinance to a new loan that offers helpful features, such as a redraw facility. If you make extra repayments into your mortgage in the future, a redraw facility gives you the option to draw down on those funds for things like funding a renovation.
3. Renovation may be more affordable
Another downside to the current property market is that the amount a borrower needs to save for a deposit is growing. Which means that depending on where you live, renovating your property may be more affordable than saving up for a deposit.
For example, the current median dwelling value in Sydney is $950,457, according to the latest CoreLogic figures. If you weren’t selling your current dwelling and wanted to save a 20 per cent deposit to avoid lender’s mortgage insurance, that means saving up $190,091. This is a tall ask of most Aussie families.
According to the Renovations Roundup report from Housing Industry Australia (HIA), the starting cost of half of all renovations in Australia is $40,000. This means that depending on your renovation goals, it may be more affordable to simply renovate your current home than save up for a deposit for a new home.
4. Auctions are highly competitive
So, you’ve got the funds to purchase a new property. But there’s another barrier you’ve yet to consider: winning at the auction.
While the record-breaking housing surge may be slowing as owner-occupiers start to retreat from new lending figures, auction clearance rates are still high. Particularly as investors begin to pick up the slack from owner-occupiers.
The latest national preliminary auction clearance rates sat at 77.69 per cent, according to CoreLogic figures. Sydney recorded an auction clearance rate of 80.16 per cent, and Melbourne recorded an auction clearance rate of 75.13 per cent. Both Perth and Canberra recorded clearance rates above 90 per cent, sitting at 90.48 per cent and 90.83 per cent respectively.
Further, in an interview with the Financial Review, a Ray White spokesman noted the real estate agency reported a 62 per cent year-on-year lift in new listings secured by agents in the past month, selling eight out of ten homes this past week.
It’s clear there is a strong appetite for property at the moment and would-be buyers will need to work smarter and harder to win at the auction. For those sitting on the fence between buying and renovating, you may want to take this into consideration.
5. Avoid the stress of moving
It’s no secret that moving home can be one of the most stressful and frustrating experiences. Not only do you need to manage packing and unpacking, securing furniture, potential storage costs and cleaning, but it’s never a cheap process.
Not only does buying property cost a significant amount of money outright or in a deposit, but there’s also the upfront costs associated, as well as post-settlement costs. And one of the most frustrating costs involved is the cost of moving home.
According to Canstar, the average removalist cost sits between $300 – $3,500, and the hourly fees charged may be between $75 to $300 an hour for a same-city move in Australia. While renovating your home is obviously not free, you will get to avoid the stress that is moving.
6. You love your home
One of the best reasons to opt for a renovation over a new buy is because of the emotional attachment you and/or your family feel to the property. Not every homeowner dreams of upscaling and if your current property makes you happy, but just needs a little bit of work, it may be worth staying put.
Plus, you’ll be able to reap the benefits of updated rooms or features instead of building them for another family to enjoy. Renovating to improve the quality of life at home may be just the thing the property needs. And at the end of the day if you do decide to sell you may have helped to increase the property’s resale value while benefiting from the renovation for a period of time.