Will Renovation Raise Your Property Value?

Will Renovation Raise Your Property Value?

This is really a hotly debated question. Some are pretty affirmative in their belief, while others insisted that money spent is wasted and could do little to help raise the property value. And the rest?

Well, they are undecided.

For me, which camp do I belong to?

Okay, before I go on any further, let us consider the following:

Before you sell your property in Singapore, you have to go through a valuation process to find out how much your property is worth. If I remember correctly, the 3 most important factors that determine the valuation price are the Location, Proximity to Amenities and the Age of the Property.

So, the most logical area whereby renovation can play a part in the property value would be the amount that property hunter is willing to pay on top of the property valuation price. For HDB flats, this is widely known as Cash Over Valuation (COV). However, do note that COV payments are not compulsory, though this is the typical practice in a robust property market.

Therefore, I believe that the 3 determining factors are:

1. Functionality and Practicality of the Renovation I believe that if there is any factor that would enhance your property value, then it would be a well executed renovation that is aesthetically pleasing, functional and practical. A well planned renovation could include relocating of an ill conceived doorway or wall, building of a partition or tearing down of walls to improve the flow of the traffic or lighting. The list goes on.

Since such renovation does more than just looking good, chances are that you would be in a more favorable position to ask for more than the valuation price.  

2. Intentions of Propery HunterTo Property Investors, they will most probably pay close to the valuation price as rental yield is what they are looking out for. An extensively renovated place with fanciful features is mostly avoided since it will mean more costly maintenance for both the owners and the tenants.

To Home Owners, they may or may not appreciate the amount of renovation that has been done for the property. So the situation may swing both ways:
- Home owners whose home design taste is in sync with yours; meaning that your Manhattan design is exactly what the would-be buyers have in mind and thus, they are willing to pay more - since they do not need to perform extensive renovation.

- However, it could also be a situation whereby the would-be buyers already have a design concept in mind; and therefore an extensive renovation is a turnoff since the cost for overhauling the extensive renovated place is much higher.

3. Market ConditionsLastly, do not forget that if the prevailing market is very bad, the property hunters will be unwilling to pay more for your property no matter how relevant your renovation is to the buyer.

Okay…so what should you do?

With these in mind, you should consider the following the general guidelines when performing your renovation:

1. Renovation should also be Function and PracticalFocus on renovation that is more than just cosmetic; brainstorm and think about ways that you can make your property more “liveable” and comfortable aside from looking good. 

2. Reconsider Extensive Renovation and adopt Classic Style If you have intentions to sell your property when the market is good, do scale down on the extent of your renovation. Should you decide on a design theme, go for “safe” style which will not go out of fashion. Remember “Industrial Look” may be the in-thing now but your future buyers (with a baby in tow) certainly will not appreciate it!

3. (For Flat owners) Use the Current Median COV as a Budget ParameterLook at the historical and current COV prices in your area. If the COV is low ($10,000 or lesser), your renovation certainly isn’t going to help you much in the property value. So how much should you be spending for your renovation? I would believe that a budget of 1.5 times the COV is reasonable, and remember that anything more is a luxury.

To conclude, I believe a renovation well planned and executed could most probably put you in a better position to ask for more than the official valuation price.

Keep in mind that any renovation you do is for your needs, and not necessarily the needs of your future buyers. Hence, it is certainly not wise to view renovation as a return on investment.  :)

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Categories: finance_tools, musings, tips