select
|

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
  
2000
Characters remaining


    Latest Property News
    • 24 Nov 2017
      Demand for secure estate living in Hout Bay has risen sharply in recent years, precipitating a spike in development with estate homes now accounting for 20.24% of the property landscape with the launch of an exclusive new gated development on 26 November adding 20 more units to the existing 1250 estate homes.
    • 24 Nov 2017
      There are some things that money can’t buy – spectacular views from Mouille Point to the V&A Waterfront and a trendy and lively neighbourhood that encapsulates the very best of the Cape Town lifestyle.
    • 24 Nov 2017
      Tshwane’s four-bedroom Mayoral mansion, nestled among ambassadorial residences in the upmarket suburb of Muckleneuk, fetched R5.1 million after spirited bidding at High Street Auctions’ final sale of the year.
    • 23 Nov 2017
      Reserve Bank Governor, Lesetja Kganyago, said that the Monetary Policy Committee had once again decided to let the interest rates remain unchanged with the repo rate at 6.75%, and the prime lending rate at 10.25%.
    • 23 Nov 2017
      As the holiday season approaches, most of us are counting the days until that year-end bonus hits our account. There’s nothing quite like a little bank balance booster to get us in the holiday spirit.
    • 23 Nov 2017
      The Adelphi Centre (now entitled “ARTEM") in Sea Point, Cape Town, is being extensively renovated, and once complete will offer an ultra-luxurious galleria style shopping centre unlike any other seen on the Atlantic Seaboard or in Cape Town.
    • 23 Nov 2017
      If you are looking to sell your home in today’s real estate market, there are certain things that you need to include both inside and outside your house. Today’s generation of home buyers is looking toward a more eco-friendly, energy and water conscious home, and if your house stands out then you are more likely to be able to sell it.
    • 22 Nov 2017
      Most people know of the Community Schemes Ombud Service (CSOS) and that levies must to paid to fund its operations. In this article the experts at Paddocks will address some of the issues that are causing confusion.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK