Ray White Balmain agent Paul Cooper made news headlines when he advertised an unrenovated Rozelle house as a dump, “particularly popular with talentless graffiti artists” and with “holes in the wall to provide natural air-conditioning”.
The honest ad created Cooper’s “most successful property advertising campaign in 28 years”, with 5000 internet hits and around 100 groups through open inspections before selling the property successfully.
In Sydney, unrenovated houses can sell for similar prices to renovated properties as buyers are happy to ‘pay’ for the blank canvas rather than someone else’s renovation tastes.
Richardson & Wrench Newtown agent Michael Xanthoudakis sold a Rose St Chippendale terrace with no kitchen or bathroom and says: “All you have to do is say a property is derelict or unrenovated and the buyers come running.”
There is no question renovating can be costly – especially in Sydney, which has the highest renovation costs in Australia – but there are some criteria buyers should look for to buy well.
Most agents agree that dated but solidly built houses are the best bargains. “Anything built or last renovated in the 1970s or 1980s with solid structure is the best buy,” says RE/MAX Elite’s John Higgins. “You won’t need to do anything major to it. Or you can just do cheap cosmetic improvements.”
Sarah Lorden Real Estate principal Sarah Lorden says the market will always be strong for untouched, original “renovators’ dreams” that have old-style features that can’t be easily replicated with modern building techniques. “A property can be a complete dump, but if it has original features – ornate ceilings, something like that – then it will be in demand,” she says.
“Older properties that had all the features ripped out in the 1970s or 1980s can also be a good buy, because it’s harder for people to see the potential in these homes and the prices are usually lower.”
Ray White Sylvania’s Sebastian Viteri says the old real estate cliché of “location, location” comes into play when working out how much it could cost to improve a property.
“I always advise people with houses that back onto a highway or aren’t in a great position not to spend a lot of money. It’s just not worth it in the end because buyers won’t pay good money for a poorly located house,” he says.
But BIS Shrapnel’s Anderson has this warning: “It’s a gamble to renovate. The dice are loaded when property values are declining.”
Many mortgage-laden buyers prefer to steer clear of the risks of buying a falling-down heap, according to Real Estate Institute of NSW president Cristine Castle.
“People still love buying homes with potential and moulding it to their own needs and dreams,” Castle says. “But I would say most families are wary of how expensive and time-consuming renovation is.”
Castle says renovating doesn’t deliver quick capital house-price growth. “Renovation is piecework and is very expensive. It’s cheaper to knockdown and rebuild,” she says.
“The prospect five years ago where people bought an unrenovated property and did it up for a capital gain has pretty much faded,” agrees BIS Shrapnel senior analyst Jason Anderson. “We are definitely seeing a softening for renovations compared to market peaks.”
People stopped trying to turn a quick buck by splashing around paint and polishing the floorboards after three years of slow – sometimes negative – property price growth across Sydney made them realise that the dollars didn’t stack up.
“No-one really wants unrenovated houses when they can buy something that’s renovated for close to the same money,” says RE/MAX Elite principal John Higgins. “People don’t have the time to renovate these days and a lot of people lost money.”
But in suburbs where house prices are strengthening, the dust and din of renovation could start up again. “The spending on renovations is going on in the more expensive suburbs, where if you add more space you add more value,” Anderson says.
Housing Industry Association chief economist Harley Dale says the availability of trades and builders to undertake renovations is what keeps renovation prices reasonable – the minute the tradies are busy, they command high prices and renovation prices increase.
Century 21 Cordeau Marshall’s Mary Hepburn says the renovating proposition stacks up well in the upper north shore, where buyers baulk at the idea of having to do the renovation work themselves.
“We have a lot of professional people here who don’t have time to renovate,” she says.
She says renovating to create open plan living spaces with bi-fold doors, a new kitchen and bathroom can add hundreds of thousands of dollars in value to unrenovated houses, but might only cost $100,000 to $200,000 to build.
In Balmain, Sarah Lorden Real Estate principal Sarah Lorden says unrenovated properties are in hot demand, fetching similar prices to renovated properties. “You pay for the privilege to renovate in the inner west,” she says.
“Unrenovated houses are cheaper around here. The buyers would rather do a renovation themselves than think they are paying for someone else’s renovation,” says Ray White Five Dock’s Jospeh Rupola, who sells in Drummoyne, Five Dock and Abbotsford.
On the north shore Richardson & Wrench Seaforth’s Philip Ambrose says not as many buyers are attracted to unrenovated properties. “No-one would really be looking to buy and renovate for profit in today’s market,” he says. “There’s just too much risk of over-capitalising.”
During the autumn selling season, some agents have reported increased interest in unrenovated houses, especially amongst first home buyers trying to enter a highly-priced property market.
BIS Shrapnel’s Jason Anderson – who has analysed Australian Bureau of Statistics figures on Sydney renovations – says the financials of renovating in the inner suburbs are beginning to stack up well.
“Those people are adding more space and therefore adding value. But the further out you go, the more questionable the value proposition becomes. There is a striking discrepancy between what’s happening in the outer suburbs and what’s happening in the inner suburbs.”
In fact, the ABS statistics show inner city Sydney suburbs spent 6 per cent more on renovation than they did two years earlier, while outer suburbs spent 13 per cent less.