Over-capitalisation risk now at its highest

Homeowners planning on renovating and extending their properties today face a greater risk of over-capitalisation than ever before warns luxury homes marketer Ronald Ennik.

“The reasons for this are two-pronged,” says the principal of Ennik Estates – the exclusive affiliate in Gauteng of Christie’s International Real Estate.

“Firstly, there has been an unprecedented rapid pace of change in  automation technology, style and design in recent years. So much so, that the shelf-life of new fixtures and fittings has never been shorter.

“In the past, if you overcapitalised on a house, you generally wouldn’t wait more than five years for value to catch up. Furthermore, it took up to 10 years before homes began to become technologically outmoded. 

“In today’s ultra high-tech and gizmo-driven market environment, however, it can take just two years for contemporary technology features and design elements to lose their appeal to buyers,” says Ennik. 

“Secondly, over-capitalisation has always bitten hardest in a declining residential property market such as we are now experiencing in South Africa (on the back of a faltering economy and unsettled socio-political landscape).
“At worst, the combination of these factors could prevent a full redemption of the capital outlay on a home upgrade – particularly if it pushes the property beyond the ceiling price in its suburb, says Ennik.

“My best advice to buyers is to avoid improving a house beyond its realistic resale value in these circumstances.

“Furthermore, make sure your renovation is tailored to suit the neighbourhood. Most residential suburbs have both average and top price thresholds beyond which sales are achievable only in exceptional circumstances,” he adds.

Check area prices

“Too much upgrade investment in the wrong suburb will be difficult, if not impossible, to recoup – so check average home prices in the area before you spend a cent.

“In normal conditions, the general rule is not to invest more than 25% of market value of a home on improvements and renovations. In the current market, more prudence is probably warranted.

“Care should be taken about an overly-costly use of the ‘3 Fs’ – fittings, fixtures and finishes – as well as buying too heavily into the fast-moving trends in technology and design,” says Ennik.

“The reality is that the long-standing process of expanding and modernising a home and then sitting back and waiting for the inevitable return on investment is itself becoming obsolete,” he concludes.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 16 Feb 2018
      Whether you own a property in a sectional title complex or are looking to invest in one, the financial standing of the body corporate is the single most important thing that can affect your investment or your buying decision.
    • 15 Feb 2018
      One positive consequence of the financial crash in 2008 was the rise in consumerism, especially in the property market, where buyers have steadily become more knowledgeable and more value conscious.
    • 15 Feb 2018
      While most homeowners will take the agent’s commission into consideration when they are trying to determine what the will get out from the sale of their property, many often forget to factor in the other costs involved in a home sale, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 14 Feb 2018
      The forecast for the national rental market in 2018 remains a mixed bag of good news and bad news. Although rentals are expected to rise slowly as the challenges of home affordability and tighter lending criteria tighten their grip, it’s a double-edged sword as the market also will come under increasing pressure from factors like declining disposable income levels.
    • 14 Feb 2018
      While you may not have intended to place your home on the market, what do you do if you receive an unexpected offer on your home? In areas where demand outweighs the current supply of homes available to buyers, it is not unheard of to have buyers make offers on homes that aren’t on the market, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 14 Feb 2018
      If you are looking to sell your home this year, Debbie Justus-Ferns, divisional manager of Renprop Residential Sales, says that there are five crucial things to do before the ‘for sale’ sign goes up.
    • 01 Feb 2018
      February is the month of love and to celebrate we will be posting about all the things we love this month. Follow the #MyPropertyLoves hashtag to keep up with our favourite things.
    • 01 Feb 2018
      After saving up and months of searching for the right home, applying for a bond and patiently waiting for the keys to the front door, it is finally time to cross the threshold and move into your new home. Now what?
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us