On top of that, the high demand for businesses and materials from homeowners renovating their homes has driven up construction costs.
CoreLogic’s CHIP report, which measures changes in construction costs, shows residential construction costs increased 1.4% in the three months ending June – the largest quarterly increase since the third quarter of 2014.
“It becomes very difficult to make a profit. The margins that I would expect as a renovator are much harder to find, due to higher home prices and renovation costs, ”said Catherine Lezer, Perth-based serial renovator and investor.
“I made money from my recent renovation, but my bottom line was eaten away by the costs of holding which had doubled and the actual costs of labor and materials which increased by 50% over the period. moment when I settled down. “
Real estate expert David Notley, director of Herron Todd White Brisbane, said it was becoming evident that the late delivery and shortage of materials was causing significant upward pressure on prices for materials and businesses.
“In some cases, we start to see some renovation projects become unsustainable and are seen as overcapitalization, where the cost of construction or renovation is not seen to reflect the added value compared to existing homes recently sold,” did he declare. noted.
Managing director of SEO site Tradie Service Seeking, Oliver Pennington, said hourly retail prices rose 5% overall in the past three months amid high demand.
‘That does not make any sense’
As such, for-profit remodeling was not as lucrative as it once was, especially in today’s market, said Victor Kumar, founding director of Right Property Group and active investor.
“It is very difficult to find properties that you can renovate and get a good return on your money because there is very little inventory and there are so many buyers looking for the same,” he said. .
“So you risk paying too much for the property, and you also face higher renovation costs due to shortages of materials and trade. It could be a fool’s gold.
Mr Kumar said the refurbishment to return had lost its power as the houses sold out quickly, whether refurbished or not.
“Buyers are so desperate that they buy anything, even suddenly. This is why we are seeing the prices increase rapidly, ”he said.
“So it doesn’t make sense to spend that money and time renovating to add value when the market can do all of that heavy lifting for you. “
Jeremy Sheppard, head of research at Select Residential Property, said it’s easier to find a high-growth market today than a good renovation opportunity.
“Renovating for profit was not a bad strategy for flat markets, but in markets where prices were going up every week, it wasn’t worth it,” he said.
Sydney investor Eddie Dilleen of Dilleen Property said there are better ways to make money in a booming market.
“For me, renovating in today’s market is a waste of time and money. I’d rather use that $ 50,000 or so as a deposit on another property and expand my portfolio.
But there are also still cases where renovations pay off for investors, said Shaun Thomas, Sydney-based executive director Herron Todd White.
“In the current market, we are seeing a lack of supply leading to very good results for homes with high quality renovation,” he said.
“For example, the Blue Mountains are in high demand with a noticeable premium paid for remodeled homes over homes in their original condition.”
Renovation also makes sense if investors have access to friendly businesses or builders, and when renovating in highly desirable downtown areas near the CBD, Mr Notley said.
“Areas in school recruiting areas where supply is insufficient and demand is high with growing families could make the renovation profitable,” he said.
“Vacant lots are becoming increasingly scarce in the city center and therefore renovation is the only option to add value and create the desired ‘family home’ due to the legacy and overlays of traditional character. “