The risky business of renovation

Home owners who sit tight in a flattening property market can be taking a risk when they increase their mortgage to spend large amounts of money on renovating and extending their pads.

Spas, installed coffee machines and fancy bathrooms often do little to improve marketability of properties and can even reduce home values, according to architects and real-estate analysts.

Many home owners use the equity in their home to fund renovations by extending their mortgage or taking out a new loan.

The cost of the additions has raised concerns of overcapitalisation by those who spend too much on fixing up their kitchen, adding a back room or installing a swimming pool.

Robert Caulfield, managing director of Archicentre, the home advisory service of the Royal Australian Institute of Architects, says he has seen plenty of renovation activity that has actually devalued properties.

One home owner renovated a third bedroom into an extensive bathroom with a spa at a cost of $40,000, but when he sold the home, its value was less, having been reduced from a three- bedroom property to a two-bedder.

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