When to do up your home, and when to sell up
Changing needs meant Joanna Chiorean’s family was in the market for a larger house, but the decision to renovate their existing home ended up being a no-brainer.
The family realised they needed more space after her mother-in-law moved in, and as their teenage son got older and more independent, she says.
But house-hunting in last year’s market was a sobering experience, with a low number of properties on the market and huge competition for them. “And we would have to move out of the area we’re in, which we love.”
Chiorean says this led them to reassess, and decide that with a 600-square-metre section and a small mortgage, it made more financial sense to add another wing on to their Burswood, Auckland, home. It has cost around $300,000 and the family could not be happier with the outcome.
Once the renovation is complete, they will have a five-bedroom, three-bathroom home, but the layout means there is an attached unit with its own living room and kitchenette, she says.
“It gives our son a self-contained living space, which is cheaper than buying him an apartment once he leaves school,” she said. “It could also turn our house into a home and income, or be rented out separately.”
Like the Chioreans, many homeowners have opted to renovate their existing properties in the last year or so, after being put off selling by sky-rocketing house prices, followed by the uncertainty of the slowing market this year.
Robin Ormond wanted to upsize to a bigger house, but was unable to find a property that suited his family’s needs. The amount of time and money required to try and buy at multiple auctions was also a deterrent.
Instead, he chose to turn his three-bedroom home in Howick in Auckland into a five-bedroom, three-bathroom one. While the build has taken much longer than planned, he says it was still the right decision for him.
“We like where we live, the location, views and neighbours are all good. Renovating allowed us to make better use of space and stay. It also allowed us to retain some of our equity.”
But the biggest renovation boom in decades is currently winding down due to rising construction costs, delays caused by supply chain issues, building product shortages, and the attendant risks. In economist Tony Alexander’s latest spending plans survey, a record weakness was reported when it came to home renovations.
So even in the current market, there can be lots of reasons why it makes more sense for a homeowner to sell rather than to renovate. They may need to relocate for work reasons, or to move into a different school zone, for example.
Harcourts managing director Bryan Thomson says the decision between selling and renovating often comes down to how much people like where they live, and whether they are willing to put up with the stresses, uncertainties and inconveniences of a big renovation.
“At the moment, the costs of building work are a deterrent. It is difficult to get a rock solid quote, while the supply chain issues are well-known, so you often don’t know exactly what you might end up paying.”
In contrast, if someone is buying a property they know the cost, and where it fits with their budget, and for many people that means it makes more sense to sell than to renovate, he says.
Renovation expert Jen Jones, from Nine Yards Consulting, says falling house prices means that decision-making has become focused on renovation costs. Lots of analysis of whether it is worth spending hundreds of thousands of dollars to renovate is going on, she says.
She’s seeing people lean towards renovation rather than selling, but “the problem is for those who want to start on a project now, there is no real end in sight to the shortages of products, such as GIB, and the supply chain delays,” she says. “That’s forcing them to wait, unless they are prepared to do things in stages and live amid a building site.”
Jones’ advice for those with extensive renovation plans is to start the consents process now, as that phase is unlikely to be completed until next year. By the time it is, product shortages and delays may have alleviated a bit, she says. “You can then either price it more safely and push ahead, or you could look to sell with consents in place which will add value to the property.”
Builderscrack.co.nz spokesperson Jeremy Gray says there has been some reduction in the record levels of demand for renovation work that was seen over the last couple of years.
A new sub-set of homeowners who have built up considerable equity and are keen to invest in improving their homes is emerging, Gray says.
“It’s like they have been waiting for the fevered demand to ease, and they sense that’s happening, so they are activating their plans now,” she said.
“Many people will be thinking that investing some money in their existing home is the better option.”
The current market means investors looking to buy a property, do it up quickly and sell it for a larger profit, are not faring as well as they did in the recent past.
But Auckland Property Investors Association president Kristin Sutherland says renovating to add value has always been popular with investors, and they are seeing increased interest around this. Based on experience in previous property cycles, this is not surprising, she says.
“Renovation, when done right, gives the landlord a healthy return and the tenant a higher quality home to live in. It’s a win-win.”