Investors have been warned that now may not be the time to attempt to add value to their properties through renovation projects.
The Real Estate Institute of Victoria (REIV) has cautioned that current market conditions put investors at a high risk of overcapitalising.
The institute warned that with the property market on the edge of peaking, renovations aren’t a guaranteed moneymaker.
“Overcapitalising – spending money on a property that may not be recouped by an increase in its value – is a risk for both investors and owner occupiers,” the REIV said in a statement.
“We never know what the future will hold – unexpected events may require us to sell, so it is always wise to ensure your home is not overcapitalised.”
The median price of a home in Melbourne reached a record high in the last three months of 2013 to $643,000, up 11 per cent in rolling annual terms.
However, the rate of growth is expected to slow during 2014, according to the REIV.
“It is not the time for major renovations, unless you can be sure they will boost the property's value to cover their cost and hopefully make a profit," the REIV said.
“If you are contemplating renovations, it's important to know your property’s current value and what it would be worth with that work completed. Within any area the pool of buyers is only so large, and if your property is well above the median price – even if it is superior to many homes the same size – it may take longer to sell.”
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