As house prices continue to increase, with the median value of an Adelaide home now around $400,000, there are growing trends to use property equity to fund major renovations and additions.
Latest data from the Australian Bureau of Statistics indicates that home renovations and extensions are placing greater demand on building services and tradespeople with a 2.5% increase in major alterations work for the December quarter. In 2010 work done on major renovations increased 6.3%.
Stefan Lipkiewicz, CEO of Bernie Lewis, says lifestyle requirements were the primary influences among property owners looking to enhance their existing dwellings.
“If you are happy with the location of your home and the surrounding facilities and services for your family, it makes good sense to consider extensions or renovations rather than moving house,” Mr Lipkiewicz said.
“The considerable costs associated with selling your existing property and buying a new home also need to be taken into account. These costs include government stamp duties, real estate fees and removalist costs.
“Quality extensions or renovations will improve the quality of life at home, and no doubt add value to your primary asset, Mr Lipkiewicz said.
People looking to borrow money for home improvements should carefully examine their financial capacity to cover equity borrowings and consider the risks of overcapitalising. You can spend a lot of money on renovations to a property with the risk of not recouping that investment if you plan to sell soon after the work has been completed.
Over five to ten years the predictable increase in your market value may offset the costs of your renovations or extensions and deliver an enhanced profit if you decide to sell in that timeframe.
According to the Real Estate Institute of South Australia’s data in the past decade the median house price in Adelaide has increased from around $170,000 to $400,000.
Mr Lipkiewicz said history demonstrated that home ownership has been a reliable way to accrue financial security and wealth in the longer term.