Good news for business, with sales up again in April, according to the latest Commonwealth Bank Business Sales Indicator (BSI).
Getting to the bottom of renovation pitfalls
- Poor planning pushes home renovations over budget and over time
- As the majority of Aussies ‘go it alone’ CommBank is encouraging all renovators to explore a flexible home loan to help manage the unexpected.
29 June 2013: With many home owners looking to undertake renovations ahead of Spring , new research has highlighted the need for careful financial planning to keep home renovation projects on track.
Whether renovating to refresh a home (52 per cent) or to add value before a sale (25 per cent), research commissioned by CommBank shows that the average home renovation goes over budget by nearly $3,0001, largely due to unexpected material (48 per cent) and labour costs (47 per cent) , and takes almost 58 per cent longer than expected2. The longer time required is likely to be particularly inconvenient for the 76 per cent of renovators who lived in their home during the renovations.
Furthermore, two in three (58 per cent) home owners needed to make compromises to their renovations because of cash shortfalls. The most common compromises included:
- progressing with a less grand design (21 per cent);
- using cheaper or lower quality materials (19 per cent);
- postponing renovating some areas of the house (18 per cent);
- using second hand materials (11 per cent);
- going without renovating areas of the house (11 per cent); and
- fewer or smaller rooms (9 per cent).
According to the survey of more than 1,000 home owners who recently renovated, one of the main reasons renovations are going over budget and time is a lack of financial and contingency planning, with the majority (71 per cent) of renovators going it alone without seeking any financial advice and 37 per cent admitting to not having a contingency plan in place in case renovations go over budget.
This is particularly interesting given that the top tip3 from those surveyed was to ensure any future renovation project included ‘detailed budget planning and tracking’.
With the majority of home renovation projects going over budget, Commonwealth Bank is encouraging all home owners to seek appropriate financial advice prior to undertaking renovations so that home owners can better plan for the unexpected.
Clive van Horen, Commonwealth Bank Acting Executive General Manager Retail Products & Customers, says, “The research has shown that for many home owners renovation projects haven’t been as straight forward as they’d hoped and in the majority of cases resulted in unexpected costs. We know that keeping renovation projects on track can be challenging, which is why I would urge anyone planning to undertake renovations to get sound financial advice and do thorough research before knocking down any walls!”
“That said, some renovation projects are destined to be problematic no matter how rigorous the preparation, which is where a contingency plan comes into play. The flexibility of your home loan can play an integral part in any renovation, particularly when it comes to contingency planning. A flexible home loan allows you to redraw or top-up your home loan and can offer greater financial flexibility than using more expensive credit available in an emergency.”
FINANCIAL RESULTS OF RENOVATIONS
When it comes to the financial results of renovations, nearly half (46 per cent) of all renovators believe the re-sale value of their property increased by more than the value of their renovations. On average, home owners believe the value of their house has increased by an additional $15,779.
However, with budget planning remaining a top priority for all renovators the need to seek financial advice around budgets and funding is critical to ensure a positive return on investment.
According to Van Horen, it’s important to consider all financing options prior to undertaking renovations to help manage costs more effectively.
“For the quarter of renovation projects that are motivated by the need to add value before a sale, I would advise that home owners consider a number of funding options, including researching how their home loan provider can help. With a flexible home loan for example, home owners have more funding options than they realise, which can help manage the unexpected,” added Van Horen.
1 Amongst home owners who have completed their renovation, they budgeted for a total cost of $27,901, but in reality the renovation ended up costing $30,511.
2 Amongst home owners who have completed their renovation, they anticipated it would take them nearly six week (5.6 weeks), but in reality it took them closer to 9 weeks (8.8 weeks).
3 The survey asked respondents to answer the following question ‘If you were to provide a tip to people planning on renovating, what would it be?'
– ENDS –
T: (02) 9118 1706 | M: 0403 681 515
Note to editors
- Was conducted among 1,030 Australians with home loans aged 18 years and over, who have undertaken home renovations in the last ten years
- Surveys were distributed throughout Australia including both capital city and non-capital city areas
- Fieldwork commenced on Thursday, 23 May and was completed on Tuesday, 28 May, 2013
- This study was conducted online amongst members of a permission-based panel
- A screening question was included to ensure all respondents had a home loan
- After interviewing, data was weighted to the latest population estimates sourced from the Australian Bureau of Statistics.