When buying a home with the intention of renovating or extending, its important that the cost of the improvements match the increase in property value.
First-time buyers used to move on to their second homes within five to six years, but now it is taking them up to 12 years to do so – and one reason is a Millennial penchant for buying older properties in good locations and then slowly renovating or remodelling them as finances permit.
“At the same time, it must be said, many other owners are weighing current home prices plus the costs and inconvenience of moving against the cost of making some changes to their existing homes, and deciding to stay put,” says Berry Everitt, CEO of the Chas Everitt International property group.
“This trend is reflected in the latest building statistics from StatsSA, which show that plans for a total of 744 000sqm of alterations and additions to existing homes were passed in the second quarter of this year (compared to 650 000sqm in the first quarter), and that about R3,9bn worth of previously planned additions and alterations were completed in the six months to end-June, compared to about R3,5bn worth of work in the same period of 2017.”
But while it’s relatively easy to spot what needs to be done to convert a dated house into a desirable modern home, or to make space for a growing family, it’s often not so simple to ascertain that the cost of those improvements will be matched by an increase in the property’s value, he notes.
“This does not mean that there are no bargains to be found or gains to be made from home renovation, which can also be extremely rewarding on a personal level. It does mean, however, that buyers and owners need to take proper precautions to avoid over-capitalising by undertaking expensive home improvement projects in an area that would not immediately support a sale price that included the original cost of the house plus the cost of the planned improvements.”
And the only real way to do this, says Everitt, is to enlist the help of a qualified and experienced estate agent to establish the current average market price of pre-owned homes in the area - as well as the average price of newly-built homes in the area that might also be competing for buyer attention.
“At the same time, you should seek qualified advice on whether the house you plan to renovate is structurally sound, on whether it needs costly re-wiring, re-roofing or new plumbing and on the estimated cost of the changes you would like to make.*
“You can then work out whether there is a sufficient margin between the average home selling price in the area and the current value of your home - or the one you plan to buy - to justify what you plan to spend on renovating or upgrading the property.”
With the help of your agent, he says, you will also be able to take a view on price trends in the area over the next few years to see whether it is worth undertaking a longer-term renovation project. “Things like new schools or convenient office and shopping developments may add to the attraction of an area and boost prices, for example, while a new highway or industrial complex nearby might cause prices to slow or even decline over time.”
The current average cost of additions and alterations to existing homes in SA is R7323 per sqm, which is 17% higher than at this time last year. But not all home improvements are this costly. For example, a few weeks of hard work in the garden can give an older home a whole new look and boost its market value considerably. A fresh coat of paint, new or restored flooring and modern lighting are a few other ways to add value without breaking the bank.