In early 2016, CoreLogic RP Data released a report saying that dwelling values started to drop for the first time after several years
It can be recalled that in mid-2015, Australia’s median house prices has risen to $660,000. Back then, Darwin experienced the biggest increase among the capital cities and Sydney was getting close to hitting the $1 million mark.
The easing dwelling prices stated in the report seemed to convey that 2016 wasn’t a good time to sell. But even then, some of those who intended to put their property on the market weren’t oblivious to one strategy.
A strategy aimed at increasing home equity.
The good news is that this equity can be manufactured.
It’s called property renovation.
Property renovation has long been touted as a property investment strategy that almost always guarantees profit as long as it’s done properly. That is, getting a professional property renovator involved in order to pick the most suitable alternations and add value to a home.
But back in 2015, the property renovation industry was progressively sluggish. In fact, HIA reported that while renovations were performing well in NSW, it had been slow in other areas, especially during the 2011-2013 period.
The Rise of Australian Home Renovations
In the same report, RP Data hinted that the property renovation sector may slowly start to resurrect in 2016. This outlook was corroborated by HIA Senior Economist Shane Garrett. According to Garrett, three factors may contribute to the strong return for renovations in 2016:
• Low interest rates
• Positive economic growth
• A boost in mid-term employment
The factors above were predicted to collectively boost consumer confidence. Roy Morgan Research, an Australian market research company, revealed that the consumer confidence index was 116.3 on 08 December 2015 – a significant increase from the previous month during that period.
So with these favourable indicators opening 2016, what happened then?
Australian Homeowners Mobilised
Roy Morgan Research recently published their findings comparing renovation figures in 2013 and in 2016. These findings are interesting.
First, the study involved 13.6 million homeowners. Of that total number, the study found that close to 8.4 million homeowners renovated in 2016. That’s a 5% increase from 2013’s 7.5 million homeowners.
Second, new homeowners or those who only spent less than a year at their address at the time of the research were more inclined to undertake renovations.
Third, most homeowners who renovated lived in a separate dwelling as opposed to those who lived in units or flats.
But what about renters? Isn’t there an opportunity for them to renovate as well?
The answer can also be taken from the research data. It reveals that the decision-making process for renting households is very different from those who actually own their homes. With renovation or home improvement generally considered as the landlord’s responsibility, renters don’t feel the need to renovate.
But there’s some renovation activity among renters as well, although the figures are small. Findings indicate that long-term tenants were more inclined to undertake home improvements. This may be explained by the sense of security they have on their lease and the length of time they’ve stayed in their rented spaces.
So among Australians who renovated, what did they exactly do?
Australian Home Renovation Projects
The research categorised the renovation projects according to the jobs completed. Here are the figures:
I can’t help but think about what actually prompted this favourable change in the renovation sector. There’s undoubtedly a lot of factors at play that allows homeowners to undertake a renovation project.
However, as renovators, we need to rely on reliable property market analysis in order to understand the process that homeowners go through before they finally decide to renovate. This now falls into the hands of our Australian Property Market Analysts like John Lindeman.
For now, we can answer one question: what motivates homeowners to renovate their property?
I’m answering that question in the next installment of The State of Australian Home Renovations Series.