Ray White Group Chief Economist Nerida Conisbee, said renovation activity is likely to increase following the recent interest rate cut, despite construction costs remaining high.
However, just how much a renovation adds in value is never easy to determine.
“How much value will my renovation add is one of the most common questions homeowners ask,” Ms Conisbee said.
“Of course, quantifying the value a renovation adds to your property depends entirely on the specific project type and scope.”
She said that while there’s a basic formula homeowners can use as a starting point, valuations aren’t always straightforward.
“In basic terms, if you spend $200,000 renovating a $1 million home, you should expect your home to be worth at least $1.2 million afterward,” she said.
“This gives you a minimum 20 per cent increase in value.”
Ms Conisbee said there were several factors that complicate this calculation, beginning with market movements.
“If you bought a house anywhere in Australia in the last two years, its value went up without you doing anything,” she said.
“When the market is rising, it’s hard to tell how much of your home’s increased value came from your renovation versus general market growth.”
Neighbourhood price ceilings also play a significant role in determining renovation returns.
“Spending $500,000 on renovations in a street where homes typically sell for $500,000 is unlikely to double your home’s value,” Ms Conisbee said.
“Each neighbourhood has a limit on what buyers will pay, no matter how nice your renovation is.”
She said personal taste and broad appeal are additional considerations when planning renovations.
“Renovations that most people like will add more value than those with limited appeal,” she said.
“A swimming pool in a warm climate is usually more valuable than one in a cold area, and most people would prefer a pool over a tennis court at the same price.”
Current construction market conditions have created a premium for recently renovated properties, according to Ms Conisbee.
“Finding builders is difficult right now, and construction costs have jumped more than 30 per cent in many places,” she said.
“This means recently renovated homes often hold their value better because they would cost more to replicate now.”
Ms Conisbee said that location remains paramount regardless of renovation quality.
“Even the most impressive renovation can’t overcome a challenging location,” she said.
“A beautifully renovated home next to a busy highway will still face value limitations compared to a less renovated property in a quiet, desirable street.”
She also cautioned against partial renovations, which can sometimes highlight unrenovated areas.
“Mixing old and new elements sometimes highlights what hasn’t been renovated,” she said.
“A brand new kitchen alongside a severely dated bathroom can make the unrenovated spaces look worse by comparison, potentially detracting from the home’s overall perceived value.”
