Unrenovated properties lose sparkle as construction costs rise

According to Herron Todd White’s latest property report for February 2024, the other shoe has dropped when it comes to the cost of construction: renovating is out and near-new is attracting a premium. Rising construction costs and long delays seem to have finally pushed the price of personalising property into the too-hard basket.

As Kevin Brogan, Herron Todd White’s head of group risk and compliance explained, building and renovating costs are expected to have an impact on market dynamics across the country throughout the year.

“Escalating construction costs will continue to be an issue. Although there has been an easing in the price of some materials, demand for trades remains high. Not only is labour more expensive, but securing trades within a reasonable time frame remains a challenge,” Mr Brogan explained.

“For this reason, new supply will be limited, and those homes that are new, or deemed ‘near new’, will garner plenty of buyer interest.”

From the Northern Beaches to the Top End, the firm’s market watchers are reporting the same thing: Australians’ fervour for renovating has waned.

Matt Greenland, an associate director at the firm, noted the trend particularly in Northwest Sydney and some beachside suburbs.

“A theme that will continue on from 2023 is that fully renovated houses or high-quality dwellings that are near-new will still attract more interest than ‘fixer-uppers’. There seems to be a large gap between dated houses needing money spent on them and ‘neat as a pin’ dwellings or new houses in good locations,” he said.

The gap between renovated and near-new is becoming so pronounced that it appears it’s not ultimately about cost – as renovating might well come in under the budget a buyer is willing to spend on a home that’s move-in ready. Panic headlines, however, have had their impact and Aussies are apparently too nervous to buy in an unrenovated state.

“Delays in materials, coupled with difficulty securing quality reliable tradesmen mean that many people are just avoiding renovating and are much more prepared to spend more on a property that has already been renovated,” Mr Greenland said.

In the Northern Beaches, he noted that development activity data suggests development applications in the LGA were down roughly 18 per cent year on year, based on data from the September 2023 quarter, and later figures are expected to show this trend continuing.

In Lismore, property valuer Vaughan Bell suggested the draw of the “near-new” is so strong that some buyers are prepared to overlook some other obvious drawbacks.

“Residential dwelling properties within the sub-$500,000 price segment in Lismore City have emerged with keen interest; particularly those formerly flood-impacted properties that have, curiously, been excluded from the ‘Buy Back Scheme’ and subsequently fully renovated and onsold,” he commented.

“This may appear to be antithetical to the intention of removing residential property from flood-prone neighbourhoods. However, the lure of acquiring a well-renovated home is proving to be a strong draw within the market. This is likely to continue well into 2024 as more of these ‘near-new affordable’ properties are listed for sale.”

Up in Rockhampton, Herron Todd White associate director Cara Pincombe described a hesitancy in a middle part of the market that involves renovations that are too complex for even skilled DIY-ers.

“Run-down properties that require renovation or overdue maintenance may present good buying opportunities for those who are handy on the tools. If, however, you need to rely on contractors to get the property up to scratch you may have to allow for a longer vacancy period as available trades remain scarce. This is also pushing the demand for new or already fully renovated stock and driving competition for these properties,” Ms Pincombe said, noting a similar dynamic prevalent in Hervey Bay as well.

In Darwin, it’s much the same and valuer Jeremy Callan doesn’t expect the tides to turn in 2024.

“Looking forward, renovated homes will remain popular as lingering high construction costs continue to wreak havoc on the building industry. 2023 saw the emergence of a two-tier market with renovated homes remaining popular despite interest rate rises and 2024 will be no different as home buyers see the value in turnkey properties,” he said.