Buying the best house on an ordinary street – is it really a cardinal real estate sin?
Remember the cardinal real estate rule that inspired a generation of Aussie property punters to “buy the worst house on the best street” to later reap the renovation rewards?
Well, that beloved mantra may have finally been flipped following the perfect post-pandemic storm that pushed building costs sky-high and left turnkey homes undervalued.
After material prices and construction times almost doubled over the 18 months, experts across the country say they’ve witnessed a rapid rise in buyer demand for finished homes with nothing left to do – and they’re sometimes the best house in the street.
“You used to be able to buy, renovate and sell and make a profit – there was a return on that investment – but that’s completely flipped,” said Brisbane-based agent Alex Jordan of McGrath.
“You can buy a turnkey home for less than you can build it now … so the concept of the worst house in the best street is not as applicable as it used to be.”
And this, Jordan said, has opened a unique window.
“Those turnkey homes are underpriced but they will eventually catch back up,” he said.
“Historically, this has never happened … and the price of concrete is still going up and so is steel. Builders are having to spend more today than they did 12 months ago but the end product is still being sold for less because the market is a little stagnant.”
Back in February, Jordan sold a new five-bedroom luxury home at 44 Ninth Avenue in St Lucia for $3 million – a figure he said was a far cry from what it would cost to rebuild the abode from scratch.
It’s also the second-highest sale price recorded on that street. Jordan achieved the record of $3.05 million when he sold 42 Ninth Avenue in December last year.
“This was a brand-new build and if you were to do that yourself now [based on current building costs] you would spend $3.4 million-plus … and the buyers knew that,” he said.
“But the other reason people are hesitant to build right now is the timeframe involved. It used to take 12 months and now it’s taking from 18 to 24 months, and that increases the holding cost.
“We’re in unchartered territory right now.”
Karl Anthony of Ray White Castle Hill in Sydney said soaring building prices were fuelling demand for turnkey homes in his region.
Of the agency’s current buyers, 78 per cent are from the North Shore and most are looking to downsize their mortgage but upsize their lifestyle with a fully renovated home.
“There’s better value here – especially in that $2 million to $3 million mark, and especially given the rising cost of construction,” Anthony said.
“If you’re going to do a knockdown and rebuild right now, you’re going to spend a lot more time and money than you can buy it for.
“Before, you would say a block of land was an appreciating asset but once you built it, it became a depreciating one. But because of the cost of construction, those rebuilds are appreciating very quickly now.”
Steven Khawam, of LJ Hooker Merrylands/Granville/Guildford shared the sentiment and said most buyers were avoiding homes in need of a makeover.
“We’re seeing that trend of people buying the best houses even if the homes are worth less around them,” he said. “The renovators aren’t getting as much as they used to.”
A striking five-bedroom, five-bedroom house perched on a 404-square-metre block at 180 William Street, Granville, was sold last month for $2.31 million by Nabil Mouslemani and Ray Fayad of Liang+Simmons Granville. This was the highest price paid for a house on that street, records show.
In Melbourne, Jellis Craig Port Phillip Director Warwick Gardiner said demand was indeed unequivocally higher for finished homes.
“The good old days of signing up an unrenovated blank canvas and getting huge buyer interest are gone,” he said.
“It’s completely the opposite now. And if you’re buying a renovator, it’s probably unliveable so the problem for those buyers is they’ve got to hold onto it for two years [before the renovation is finished].
“This means they’re not only spending an extra 50 per cent of the building cost but that’s two or three years with interest rates at six per cent without being able to live in the house.
“It’s this spiralling issue where it’s just so expensive to buy an unrenovated house. Therefore, all of our renovated stuff is in demand.
“I’ve got this Victorian house at the moment that was renovated 10 years ago and the interest is significant because it’s completely done.
“In fact, properties priced above $4 million have been our strongest performers in the past six months.
“The only red flags I see in the market at the moment are the unrenovated homes because you need tenacity, patience and money to execute that.”
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