It may be fair to assume that most South African homeowners view their properties not only as places to stay but also as instruments for wealth creation. This is both a natural and a constructive mind-set to have in a free-market economy. Unfortunately, even if we do hold this view, many of us either do not take full advantage of the possibilities or we approach them haphazardly and even carelessly. Or worse still, we often seem to think that wealth creation from property is a given; that all we have to do is to wait for it to happen. There may have been a time that this was at least partly true, but those days are gone.
In the property heydays in the first half of the 2000’s, property ownership may have been the single most important and easiest way of making money – and lots of it – for the average Joe in South Africa. People everywhere were getting bank loans and investing in property. During this period, house prices rose by an average of 20% annually, according to the Global Property Guide, peaking in 2004 at 32.5% year-on-year growth in real terms. This of course has changed since, and very possibly mainly because of, those days. Following the global financial crisis in 2008, house prices not only stagnated, but actually fell, and have only been able to show marginal growth again from 2012. The good news is that the tide seems to be turning again. Suddenly, there is renewed interest in the residential property market. People have started buying again. Property experts predict that South African house prices will rise by a nominal 8% in 2015/2016, with real price growth at 3%.
But what does all of this have to do with property renovation? Well, quite a bit, actually. During the past 8 years most people have been holding on to their homes because of the perceived negative state of the housing market. Because they could not sell or afford to buy, they were improving their own homes, making them better, bigger, safer and more comfortable for themselves. Once the property market has recovered sufficiently, people will start selling and buying again. It can be assumed that initially at least, buyers will be quite fussy and that asking prices will require some effort to be attained. Sensible renovation can go a long way in ensuring that the homeowner regains a healthy return on investment and secure the asking price when the time comes.
International and local experts agree that home improvements, if done wisely, can effectively increase the resale value of a property. Research indicates that certain improvements add more value than others, and many of the experts concur that huge capital outlay is often unnecessary. Here are the five types of projects that research shows will yield the highest return on investment:
1. First impressions. If you are selling your house, you should always put yourself in the shoes of the buyer. Would you pay the asking price? The problem sometimes is that sellers try to focus on specific outstanding elements like that massive main bedroom or third bathroom, but often neglect the first impressions that their property create. Simple, non-expensive renovations can make all the difference in adding value. People form their opinions within the first few minutes, if not seconds, of seeing your house for the first time. That “picture” must be appealing and pleasant, and not even in the slightest disturbing. Think boundary wall, paving, garden, roof, gutters, paint work, wooden doors, damp issues etc.
2. Basic structure and systems. Again think about those simple things that will encourage the buyer (or discourage the buyer) to pay the asking price. Security, for example, is probably one of the most important elements in ensuring increased resale value, especially in South Africa, where security is high priority for all residents. Upgrade your security systems like electric fencing, alarm system, garden beams and perhaps security cameras. Your boundary wall or fence should be as secure as possible too, whilst being aesthetically pleasing. Similarly important are doors and windows. Your outside doors are often an indication of the general state of the property. Sand down and re-stain your wooden front door and back door. Replace old rusted steel windows with modern aluminium ones, and install aluminium sliding doors where you can. Replacing old garage doors with modern segmented motorized ones can result in as much as 72% on ROI.
3. Kitchens. The research indicates that basically any improvements in the kitchen will add value to your home. Without exception, potential buyers will consider the kitchen when evaluating whether they are willing to pay the asking price of your property. A kitchen remodel is one of the best ways to add value to your house, and if done correctly, it can give you close to a 100 % return on your investment. Consider the following to ensure maximum return on investment:
· Create as much space as possible. Sufficient counter and cupboard space is a must. Use all the available space you have without making the kitchen feel cramped.
· Revamp old wooden kitchen cupboards by painting them. Replace the old handles and hinges with modern ones.
· Although this may sound strange, gourmet, state-of-the art kitchens can be a distraction rather than a value-add. If you have an older house decorated and fitted Old Cape style, the modern steel-and-glass kitchen will stand out like a sore thumb.
· Granite countertops are very popular with buyers, but use a colour and design that will be as widely fashionable as possible.
· The splash-backs between countertops and higher cupboards are really feature walls which can be a very effective and relatively cheap way to attract buyers. Consider the myriad of possibilities regarding stone or other cladding instead of tiles.
· Use down-lights underneath the cupboards or in bulkheads to light splash-backs and countertops for a warm and welcoming atmosphere in kitchens.
· As in bathrooms, lighting in kitchens is extremely important, so be sure to have sufficient light and use light fittings that match the general look of the kitchen.
4. Bathrooms. Bathrooms are extremely high on the list of how much the potential buyer is willing to pay. If you upgrade your existing bathrooms, or add extra bathrooms or conveniences, it will add considerable value to your home. Here are some tips to maximise your return on investment:
· Increase the useable square metres in your bathroom. Consider discarding underutilised cupboards or the bath in the second bathroom and replacing it with a shower. Lighter and larger tiles generally create the perception of more space.
· Generate all the light you can get. Fit more or bigger windows if possible, think about installing skylights, and use sufficient artificial lighting.
· Do not use paint colours and tiles that will look old-fashioned easily. Avoid extreme colours and patterns in paint and tiles.
· Buyers love those “extras” such as double vanity basins and spacious showers, clean lines, modern amenities and fittings that combine practicality and aesthetic looks.
5. Additional space. Floor space determines to a very large degree how much a buyer is willing to pay for a property. In November 2014 the average price of small homes (80 to 140 square metres) was R 852 000, the average price of medium homes (141 to 220 square metres) was R 1 191 000, and the average price of large homes (221 to 400 square metres) was R 1 814 000. Again, however, you must be mindful of what sells. The following may give you some guidelines:
· Additional full bathrooms have been proven to add up to 20% to the house value, and half bathrooms up to 10%.
· Each additional bedroom will add up to 6% to the house value.
· Convert outside buildings into useable space. Potential buyers often like the idea of servants’ quarters or storage rooms converted into fully functional flats which can be rented out.
· South Africans love entertainment areas. Convert a courtyard into an enclosed and roofed patio with sliding doors or build a wooden deck. Decks, incidentally, show up to as much as 70% return on investment.
· Any additional storage space is a winner with potential buyers. Convert an unused bar area into a pantry or store-room, for example.
According to research findings, the home improvement projects that yield the lowest return on investment are:
· Plastering and painting face brick-built houses
· Gourmet kitchens
· Spas and whirlpool baths
· Expensive landscaping
It goes without saying that we should not over-capitalise, but it is not always easy to know when we do. Over-capitalisation simply means that homeowners improve their property so extensively or expensively, that the cost of renovations, added to the selling price of the house, exceeds the current market value of the property. Of course there are numerous other factors which determine value besides cost of renovation, but if you focus on the above improvements, which have been proven to increase house value and yield highest return on investment, you will minimise the risk of over-capitalising. Be sure to do some research of your own, too. Study the average house prices of comparable homes in your area. Get an independent property valuation. Have a look at your neighbours’ houses. Compare the state of your own house to that of houses in the area. Then start with the least costly but most important and high-impact improvements listed above, and get another valuation. Once you start exploring the possibilities, you may well be surprised to find how much your property value can increase through renovation.