Five factors to consider if you’re thinking about renovating

With property values falling in many parts of Australia, this might be a good time to think about ‘manufacturing equity’ in your home through renovations.

But what changes should you make? And how much should you invest?

Ray White chief economist Nerida Conisbee said there are five factors to bear in mind when calculating what sort of return on investment you could get from renovations.

  1. The amount you spend. “It is too simplistic to say that a renovation will add 10% to the value of the property because no two renovations are the same,” Ms Conisbee said. For example, renovating a bathroom will add less value than adding a second-floor extension.
  2. The neighbourhood. The amount you invest should be appropriate for your local market. “Spending $500,000 on a renovation in a street where the median house price is $500,000 is unlikely to lead to a doubling of the house price, as there is a cap as to how much people are prepared to pay for that street,” she said.
  3. Other people’s tastes. When renovating, it generally pays to stick to a style that has broad appeal and isn’t likely to become outdated soon, according to Ms Conisbee. “Similarly, adding a pool in a warm climate would generally be better received than in a location that is cool for most of the year. Furthermore, more people are likely to see a swimming pool as a better backyard option than a similarly priced tennis court.”
  4. Building costs. Builders are in short supply right now, which is pushing up costs and is likely to make a recent renovation more valuable than it otherwise would have been. “This is certainly showing up in property demand, where renovated properties are frequently still seeing rising prices despite prices softening overall,” she said.
  5. Market conditions. When the value of your home increases, it can be difficult to work out how much of that increase is due to your upgrades and how much to wider market conditions. “If you bought a house anywhere in Australia over the past two years, you would have seen its value increase without doing anything to it at all,” she said.


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