Now’s the time to upgrade your home

Posted on 16-Mar-2011 by Hugh Jones

Understanding market cycles and current market conditions will put you in a much stronger position to buy and sell with the best results.

The property market has started 2011 a little softer than we’ve seen in recent years which makes it a good time to consider upgrading.

Though it might seem counter-intuitive, the best time to upgrade your home is when the market softens. During a flat period the lower, middle and upper-end of the market are all impacted differently.

The basic laws of supply and demand dictate that there will always be more buyers who fall in the mid-range rather than the upperend category, the comparative demand for these properties will keep prices reasonably steady. For example, in a soft market upper-end properties might drop up to 15% in price, mid-range properties might slip by around 10% and lower-end properties might fall less than 5%.

So if you were looking to upgrade to a $2M home, you could potentially save $200k on the purchase price. Such savings mean you could be in a position to purchase a higher quality property with enough money left over to take care of stamp duty and some selling fees.
In terms of other economic impacts, Melbourne’s upper end property market is also affected by the success of the stock market and business performance. During a boom economy the upper end accelerates quickly, but when the economy slows it becomes very difficult to sell luxury properties because many potential buyers adopt an austerity mindset until they see how the market will play out. Again, this means buyers with cash and courage can do very well from this window of opportunity.

The ability to finance is also a key factor to property market performance and impacts upon real estate at all levels. If buyers can borrow money relatively easily, the market thrives, just as we saw during the last property boom. Although lending practices have tightened recently, it’s still much easier to attract finance in Australia than say the UK where buyers experience great difficulty
borrowing regardless of individual financial position. Without the access to funds – whether that’s to purchase, build or develop – market velocity slows right down and the property market very quickly begins to hurt.

If you’re thinking about upgrading your home, there are seven key things to consider:

1. Buy or sell first?

We’re often asked if it’s best to sell first or buy first. The short answer is that it depends on the state of the market and the buyer’s ability to finance. During a rising market, it’s generally best to buy first in order to capitalise on better price opportunities as the market goes up. By contrast, during a flat market it’s very important to sell before buying – particularly if your home is your most significant asset and you have no financial capacity to hold a new home plus your existing one.

2. What you’ll need in the next 5–10 years?

It’s crucial when upgrading that you consider the needs of your family over the next five to ten years, rather than just the immediate future. For instance, if you’ve got kids in their twenties, the need for space will often be short-term because the kids might be looking to move out of home
within a couple of years, which means you might not need to buy a large family home.

3. Safe bets: close to transport and schools

If you upgrade to a home that’s close to public transport (within 1.5km of a train station) and close to private schools, your property will always have a buyer as these features are perennially popular. For instance, the Glenferrie Road tram accesses more than half of Melbourne’s top private schools, and family homes that are within walking distance of this tram line are always in demand. Just be sure that you avoid buying a home that’s on a main road.

4. The renovator’s dilemma

If you’re purchasing a property that requires a substantial renovation, accept that you’ll need to hold onto the property for at least five years, preferably ten, or else risk losing the benefit of your investment. At this stage of the market and building cycle, it’s generally possible to buy a renovated home more cheaply than it is to buy and renovate. If you’re buying to renovate, make sure the property’s facade is of a high enough quality to carry the renovation otherwise you risk over-capitalising. For instance, if you’re planning a grand renovation at the back of the house it’s vital that the existing facade of the property has presence and is significant enough to warrant the investment. Small, dingy front rooms will not balance an opulent extension at the rear of the property. With the floods and storms we’ve witnessed already this year, the demand for trade services will continue to rise and this won’t be a great year for renovating. Structurally sound properties that could be upgraded with a cosmetic renovation are your best option.

5. Quality

If you’re looking at properties that fall within the $1.5+ range go for solid brick or brick veneer rather than weatherboard and avoid facades that are too contemporary which will date quickly. Building inspections are crucial within this price range to know exactly what you’re buying. If you’re looking
in the bayside suburbs, a pest inspection is highly recommended.

6. North or north-west aspect

Generally, people are prepared to pay more for a home with an outdoor area or living space that has a north or north-west aspect which guarantees good natural light and plenty of sunshine for outdoor entertaining.

7. Streetscape

Properties with a consistent streetscape and good quality off-street parking will always attract solid prices. As Melbourne moves towards higher density living in the middle suburbs, period homes in streetscapes with a heritage overlay will become increasingly scarce and therefore increasingly sought after and more highly valued. Buyers will pay more for such a home because they can rest assured that there will be no neighbourhood development surprises in the foreseeable future.