Property
With Australia’s housing market swinging in favour of buyers and auction clearance running in some states at under 50 per cent, the time is ripe to reenter the property market but with caution, Archicentre, the building advisory service of the Australian Institute of Architects, is warning.
Archicentre General Manager David Hallett said home buyers and renovators entering the property market are facing a climate of increasing costs of living and a longer period for capital gain on the property which increases the need for due diligence on the property purchase.
“People usually purchase three to four houses in a lifetime with the expectation that they will increase their personal wealth and their ability to ‘trade up’ by adding value through renovation and making money at the time of sale. One of the major risk aversion strategies for home buyers and renovators is to establish the value and potential of the home for money-making renovation through proper due diligence, including a pre-purchase property inspection."
Mr Hallett said DIY renovators hoping to make a killing by purchasing a rundown home for renovation without having a pre-purchase property inspection or a design concept worked out can find themselves facing an expensive dilemma when unforseen building faults are found or when their renovation ideas are simply not practical.
The worst case scenario is when halfway through a renovation a major problem such as termites, or structural defects are discovered leading to costly variations to the renovation plan and substantial impact on the financial return.
In Archicentre's experience problems with the structural integrity of the home often become evident three to six months after people have moved in and start to notice the issues varying from leaky roofs - usually after a severe rain storm; cracks appearing in plaster work - a tell tale sign of building movement, or in more extreme cases termite damage which can vary from minor - $10,000 repairs up to $150,000 for serious cases.
Mr Hallett said a pre-purchase property inspection lets you know immediately if there are any serious building faults and is extremely valuable when you are negotiating your property purchase, making a property bid or applying for a bank loan. Most importantly it can help remove expensive health, safety or financial risks in the future.
“The normal practice for expensive property repairs is to add the cost of repairs onto the mortgage, which escalates the cost with the additional interest payable over the normal 30 year mortgage, making the cost of not having a pre-purchase property inspection a very expensive mistake."
“The real cost of repairs of $50,000 on a house purchased without a pre-purchase inspection when added to the normal twenty five year mortgage at 7.5% is $369.50 a month, with the total interest payment being $60,848 making the real cost of the repair $110,848."
Mr Hallett said such costs can make a severe dent in the capital gain on any property and in turn limit the potential level of upgrade a home owner can expect in the future.
“The pre-purchase property inspection also provides home buyers with the opportunity to leverage their knowledge of the home's condition in negotiating a price with the vendor to take into account the cost of future repairs to areas such plumbing, wiring, re-stumping or roof repair.
“Anyone contemplating spending hundreds of thousands of dollars on a home as an investment should have a professional assessment of the property or make the sale of the property subject to an independent inspection revealing no serous faults," Mr Hallett said. “
When arranging a pre-purchase inspection it is also vital to ensure that the inspection service is reputable and that the inspector is qualified and has appropriate professional indemnity insurance to be able to pay compensation if they fail to find a defect which could cost the purchaser thousands of dollars to fix after relying on the pre-purchase property report to buy the property. Alternatively, they should ensure that the service provider offers a guarantee on their work.”
• Archicentre has a Cost Guide available free on its website at www.archicentre.com.au which provides a detailed guide to costs of common household repairs and renovation to assist home buyers and renovators in costing their projects and avoiding unexpected cost blowouts.
