Should you upgrade or renovate your home?

Upgrade or renovate?

DIANA: Welcome to Q&AMP: Upsizing and Renovating, where we consider homeowners’ decisions to either buy something new or upgrade and renovate their existing home.

I’m Diana Mousina and I'm a senior economist at AMP Capital. Today I’m joined by Tim Lawless, who's the research director at the property analytics company CoreLogic. We’ll be discussing some of the pros and cons of both upgrading and renovating, to help you make a more informed decision.

Tim, perhaps you can start by giving us an overview of the Australian property market at the moment. How has it been impacted by the economic effects of coronavirus?

TIM: Thanks, Diana. We’ve certainly seen an impact from coronavirus on the Australian housing market. In fact, it's been fairly broad-based around the country and most capital cities have seen some level of downwards pressure on home prices.

Having said that, these aren't sharp declines and the housing markets remain relatively mild in the face of the COVID-19 challenges to date. Considering the run-up in housing values pre-COVID, we're still seeing most of the capital cities recording housing prices that are higher now than what they were 12 months ago.

Record low interest rates, government support and loan repayment holidays for borrowers who are experiencing distress, are all factors that have helped to insulate housing values through the COVID-19 period so far.

DIANA: Well that does sound like a glimmer of good news. But what's the outlook for the property market now?

TIM: Based on our research, it is likely that housing values will continue to trend lower at least over the medium term. Many of the government support programs, such as JobKeeper and JobSeeker, are set to start reducing later this year, and through early next year, most institutions will see their home loan repayment deferral programs expire. We're likely to start to see more urgent sales around this time.

Any successive waves of coronavirus cases would also deflate consumer sentiment further and that could have a further negative impact on housing values.

DIANA: So, what does this mean for those who are looking to trade up to a bigger home in the near term?

TIM: If you feel sufficiently secure in your own financial situation, this might be a good time where your dollar could stretch a little bit further in the housing market.

If prices continue to fall, finding a home that has, say, an extra bedroom or an extra bathroom, or a larger entertaining area or outdoor area, might become more affordable down the track.

It's important to remember though that if you are selling your home to fund the purchase, you might get less for the property now than you did pre-COVID or six months ago.

DIANA: That’s a great point, Tim.

Of course there will be some homeowners who prefer to stay where they are and upgrade or renovate their existing home. The government’s new HomeBuilder scheme could certainly encourage this option. Could you tell us more about this scheme?

TIM: We’re expecting this could be the case. HomeBuilder is part of the Federal Government’s economic response to the coronavirus. Owner-occupiers can apply for a $25,000 grant for a substantial renovation – the owner will need to spend at least $150,000 before the grant can be applied.

And of course, there's other conditions relative to the grant that are available on the Federal Treasury website.

DIANA: For those considering a property upgrade, what features should they be looking for, especially if they're wanting to sell that property down the track?

TIM: First and foremost, of course, any renovations should be suitable for the person that's living there. However, if you’re looking at selling, say, over the next 5 or 10 years, it's really important you consider factors that might be appealing for other buyers down the track.

At the moment, we’re seeing things like kitchens as a top priority for both homeowners and buyers alike. So if you have an interest in, say, cooking or entertaining, then allocating your budget to a kitchen upgrade might be something that's worth considering.

But if you’re thinking of selling down the track, then always keep an eye on your renovation budget and your timeline for selling. You don’t want to be spending more now than you're potentially going to be gaining, once it comes time to selling.

DIANA: Thanks Tim, that's a lot of great information in there that will help homeowners in their decision-making process.

Here’s a quick recap:

Property prices have fallen across most capital cities as a result of COVID-19.

Falling property values means that upgrading to a new or bigger home could become more affordable.

However, if you’re selling your existing home then, its value may have also dropped.

For those renovating their existing home, the Federal Government’s HomeBuilder scheme may help to fund these costs.

When renovating, consider features that are attractive to future buyers, such as a larger or more modern kitchen.

Visit amp.com.au/homeloans for home finance calculators and more information.