Renovation costs distorting growth

HOMEOWNERS’ expenditure on renovations could be artificially inflating property prices in some areas, according to Roy Weston Group CEO Geoff Baldwin.

Mr Baldwin said that, during the June quarter, more than $85 million was spent on home renovations by homeowners in Western Australia.

“Expenditure on home renovations can distort capital growth rates in some areas because a number of home buyers are purchasing older style properties, spending up to $50,000 on improvements and then selling an increase equalling double that expenditure,” Mr Baldwin said.

“In a suburb where the median house price is $200,000, this type of activity can result in the median house price rising between 30 and 50 per cent in one year.

“An example of this is Mellville, which is one of the highest expenditure areas for home renovations in the Perth metropolitan area.

“During the past year, the median house price in Melville jumped by 34.5 per cent in response to the surging amount of money being spent on upgrading homes in that suburb.”

He recommended those considering buying an established home to compare the selling price with un-renovated homes in the same area, which should give a better reflection of the real capital growth rate of an area.