Stamp Duty: A Home Renovations Game Changer?
Is stamp duty just a minor expense? Not any more.
Not only has stamp duty increased, but the price of housing has skyrocketed in the last 20 years. These combined changes have forced the expense of stamp duty on the average home in Australia’s eight capital cities to increase by an exasperating 660%, while in certain areas figures show an increase of up to 800% (according to the Property Council of Australia).
Consequently, what was once a minor pain to deal with has now become a veritable game changer for homeowners. Faced with such exorbitant figures, many Australians are electing to stay put, do a little renovating or home extension work and invest their money in their current homes.
The stamp duty fiasco: how on earth did this happen?
Let’s go back in time and see how things have changed. In as recent as 1995, the median house price in Sydney was $177,000. Such a house would attract stamp duty of $4685. Today, the median house price is $880,000, making stamp duty increase to $35,090.
So what’s going on? Stamp duty was intended to cover the costs for the government to transfer title. Rates were set in 1986, and, providing you had a house valued under $300,000 you only had to pay a rate of 3.5%. Remember, in those days, if you had a house valued over $300,000, you were considered wealthy – and hence it seemed acceptable that you attracted a higher stamp duty (which could be 4.5 to 5.5%).
But by today’s standards, few people purchase a house less than $300K. Effectively, we are all paying a tax intended for the very rich. And the fact that stamp duty has increased in varying amounts from state to state only adds insult to injury.
Purchase a one-million-dollar house, for example, and you’ll be lumped with approximately $41,000 to pay. And that’s not all. Let’s look at the other potential expenses:
agent fees to sell your previous home
minor presale renovations or cosmetic improvements
real estate advertising
quick improvements to your new home
Hypothetically, combined with your hefty stamp duty fees, you could be up for expenses in the realm of $70K to $100K.
Don’t move, let’s improve
Isn’t it interesting the way the economy drives trends?
Given the sums faced with moving, it only makes sense that there’s an ever-growing number of homeowners deciding to stay put.
‘Don’t move, let’s improve’ is becoming the modern day mantra. Of course, adding a second story addition to your home or undergoing serious extensions will cost you more than our approximated (and hypothetical) $70 - $100K. But if a moderate home improvement that provides you with a couple more rooms and an additional bathroom could be created for approximately $120,000, arguably, this is money well spent.
Choose to renovate, and you won’t be alone. According to the Mortgage & Finance Association of Australia, the most popular reason for refinancing is renovations.
Of course, it pays to be sensible when renovating, so you don’t make any nasty mistakes. Sound advice from professionals – not only professional home builders but engineers – can be worth every penny.
Over capitalisation can be a problem. For example, building a massive structure with five bedrooms on a small block may kill the chances of resale. Large families don’t want an abundance of bedrooms if there’s no garden.
The condition of your house is also an important consideration. If you’re interested in moving up with a second story addition, your house has to be structurally sound to take the load. Fortunately, though, the majority of houses don’t require underpinning and can easily support a second story. Other issues such as rising damp, bad wiring or rotting joists may add to be the expense of renovating or extending. The bottom line is to do your homework and understand what is possible – and at what price.
Arguably one of the best tips for those considering a renovation is to ensure that your renovation project is well coordinated. There is nothing worse than being left waiting for a trade with part of the roof missing, or finding yourself surrounded by dirt and no electricity for weeks or even longer. Having all the trades locked in one after the other, or better still, hiring a project manager for the operation is a smart move.
Providing you seek professional advice and your home looks like a suitable candidate for renovation, the choice to renovate may well be a wise one. And it’s a choice that is becoming increasingly popular. According to RP Data, we’re already staying in our homes for longer. Aussies are averaging 10.5 years in their homes today when only a decade ago it was 6.1 years. And with the state of our economy, it looks like staying put will become more than just a passing trend.
After all, will the grass always be greener at your new home?
If you’re interested in renovating your Perth home, contact Design Renovate today.