98 neighborhoods likely to see value increase

98 neighborhoods likely to see value increase,

Home values in some of Australia’s most exclusive suburbs are expected to rise even further, driven by billions of dollars in upcoming renovations.

Luxury neighborhoods nationwide are preparing for a construction surge that could further elevate property values, with the most expensive areas leading in renovation approvals.

In June, renovation approvals reached a record high of $1.17 billion, contributing to a total of approximately $12.8 billion in approved renovations for the past financial year across Australia.

The latest building approvals data from the Australian Bureau of Statistics reveals that a significant portion of the spending is occurring in the country’s most expensive suburbs. Wealthy property owners, particularly in Sydney and Melbourne, have shown a strong preference for renovations.

The data details the value of alterations and additions to properties approved over the past year for each SA2 region. This area, defined by the ABS, usually encompasses several suburbs.

The data covers the 2023-24 financial year, indicating that many approved renovations may already be completed, while others are still underway.

Most of the regions with the highest planned renovation spending are populated with multi-million dollar properties, significantly exceeding Australia’s median home value of $795,000.

In the top 30 regions for renovation expenditure, a total of $1.55 billion in alterations and additions was approved over the past financial year.

PropTrack senior economist Paul Ryan explained that several factors motivate owners of high-value homes to invest heavily in major renovations.

“Expensive suburbs are desirable due to their large land sizes and prime locations. These attributes make substantial investments in homes a worthwhile endeavor for property owners,” he said.

Mr. Ryan noted that financial obstacles to relocating, such as stamp duty—which is higher for more expensive properties in both NSW and Victoria—are prompting people to enhance their current homes rather than seek new ones.

“Significant stamp duty costs, especially in premium suburbs, strongly encourage homeowners to invest in renovations rather than moving when they desire new uses or features for their properties,” he said.

The suburbs where homeowners are investing the most in renovations

The region with the highest value of approved renovations was Point Nepean, located at the tip of the Mornington Peninsula. Homeowners in the suburbs of Blairgowrie, Fingal, Portsea, Rye, Sorrento, St Andrews Beach, and Tootgarook planned to invest an impressive $97.5 million in renovations.

Liz Jensen, a real estate agent and director at Kay & Burton Portsea, noted that many property owners were updating their holiday homes or second residences and transitioning to living on the peninsula full-time.

She explained, “A lot of people have seized the opportunity in recent years to sell their long-held family home in Melbourne. They’re now renovating their second homes to make them their permanent residences.”

Meanwhile, younger couples and families were buying fixer-uppers and renovating them as a more affordable way to enter the desirable market, according to Ms. Jensen.

However, turnkey properties were in the highest demand, particularly among wealthy, time-constrained buyers.

Ms. Jensen noted, “The buyers I’m working with now include fund managers, lawyers, and high-income earners with children ranging from young to late teens. They’re looking for their forever beach house.”

“Renovation surge” in exclusive neighborhoods

In the past year, $88.5 million in renovations were approved in Manly and Fairlight on Sydney’s northern beaches, a significant increase from around $38 million the previous year.

According to Michael Clarke, a Manly real estate agent and principal at Clarke & Humel, affluent buyers are increasingly choosing Manly and Fairlight over neighboring areas and investing heavily in major renovations.

“I have never seen such a renovation boom in my life,” he remarked.

With increasing home values at the high end of the market, Mr. Humel remarked that many owners felt it was “almost impossible to overcapitalize.”

He added, “A lot of people who might have considered moving to other areas have decided they don’t want to be anywhere else.”

“They love where they live, and as a result, they’re willing to invest everything they have into their homes,” he said.

Georgi Bates, a real estate agent and director at Cunninghams, noted that turnkey homes were in the highest demand, which kept prices elevated. Strong sales results were also giving renovators the confidence to spend significantly.

“The cost of moving is high, and people prefer to stay in the area,” she said. “It’s such a highly sought-after location and lifestyle.”

She explained that many owners were renovating their ‘forever homes’ or downsizing, with no intention of flipping for profit. This trend is further limiting the supply in the tightly held market.

Other high-end suburbs planning substantial renovations include Malvern, Toorak, Brighton, and Albert Park in Melbourne, as well as Palm Beach, Darling Point, Double Bay, Point Piper, Rose Bay, and Vaucluse in Sydney.

In Queensland, $46.5 million in renovations is planned for the inner-city suburbs of Auchenflower, Bardon, Milton, and Paddington. Additionally, owners in New Farm and Fortitude Valley have secured approval for $35.7 million in upgrades.

Record Renovation Spending as Construction Bottleneck Eases

According to the ABS, the total value of renovations across Australia for the 12 months ending June 2024 was approximately 6% higher than the previous financial year, reaching an all-time high in June.

Although construction costs have risen at a similar rate, Mr. Ryan noted that conditions for renovators have recently improved. The increase in home values is motivating more owners to invest in their properties.

“Building shortages, particularly for materials, have eased somewhat, as have labor shortages. This reduction in uncertainty is encouraging people to return to renovation projects,” he said.

“Recent strong growth in home prices is providing some owners with the equity needed to complete their renovations. This trend is expected to support renovation activity for the foreseeable future.”