Home improvement is largely consumption that generates little return on investment

Dec 15, 2021

IN the days before the Covid-19 pandemic struck, all that many people required of a home was a comfortable bed to get a good night's rest. Weekdays could be filled with long hours spent in offices, followed by meeting friends for meals and drinks or heading to the gym or catching a performance.

Weekends might involve more meet-ups, nature walks and visits to malls. There could be various holidays abroad, comprising short weekend getaways and longer trips to far flung destinations.

In short, many people may not have spent much time at home. But, with the pandemic, habits changed. Working and studying from home, meeting friends virtually, ordering food delivery, doing more shopping online, participating in online gym classes, attending online mass, among others, became new norms.

Looking ahead, people may head back to office buildings, travel and dine out more. But the importance of having a comfortable home that is able to multi-task as a work space, a relaxing sanctuary and a spot for physical activities may be top of mind for many people.

Can spending on home improvements to make a home comfortable, flexible and future-proof be a good investment?

Property groups incur substantial capital expenditure on asset enhancements of their buildings to make them more attractive to potential tenants or increase lettable area so as to drive higher income and capital value from the said buildings.

If one is a residential landlord, one may want to mimic what commercial landlords do and try to be smart and financially disciplined when carrying out home improvement works. These include sprucing up a place based on what a likely tenant would value and renovation works with minimal downtime. A home that is well conceived and maintained can potentially fetch higher rent, be leased out quicker, and withstand competition from other units.

But spending on renovations for an owner-occupied home may produce no financial return on investment as the home generates zero recurrent income.

A 5- or 6-figure renovation for an owner-occupied home is probably more akin to splurging on a big ticket consumption item such as a new car or the holiday of a lifetime.

In budgeting for home improvement works, cost overruns need to be catered for especially as the construction sector here is grappling with pandemic-induced supply chain disruptions and manpower shortages. If renovation works are extensive, one may need to move out and rent a place. An extension of the renovation timeline can add to extra rental costs.

Future proofing

Still, a well-executed home improvement project does yield benefits. One gets a conducive place to create many special memories with loved ones. The home may be bespoke to one's lifestyle, with an oversized kitchen or the living room repurposed as a gym depending on whether one is a cooking or fitness enthusiast.

Perhaps one creates a more environmentally friendly abode with good ventilation, a reduction in energy consumption and the use of sustainable materials.

A comfortable home can help boost one's mental well being and help one recharge, thereby making one more productive at work.

But the future proofing aspect of renovating a home is invariably tricky. A young couple may have configured a home as an abode for 2 adults, but their needs change substantially with the arrival of young kids. Well-meaning parents may have re-done a home to entice their adult children to live with them, but the offspring may decide to fly the coop.

Some people may justify sinking a huge sum to do up an owner-occupied home by using the rationale that some of the costs can be recouped if and when one sells the home. For example, a potential buyer may be wowed by the new lift and lap pool that have been added to a landed home.

Given that resale homes are much cheaper than new homes, my own bouts of home hunting have focused on the resale market. Currently, the price gap between new homes and those in the secondary market can be around 40 per cent.

Viewing homes was done mainly physically in the pre-pandemic days. While this exercise requires plenty of shoe leather cost, the experience can be rather interesting as viewing homes provides intimate glimpses into the lives of family units.

My worst memories involved units that were extensively renovated. Agents and/or owners would proudly tout the merits of the renovation works and the costs involved to help justify asking prices.

Often I recoiled at the extensively renovated homes. My wife and I would discuss what features of the home we could live with and what we needed to get rid of.

The takeaway from my own experience is that potential buyers may attach zero or even negative value to the renovation works that were carried out by a homeowner. Some potential buyers in the secondary market may prefer buying a home that is 20 or 30 years old, which is in its original condition, and spend the resources to do up the unit in a manner that meets their specifications.

Pampering oneself

When it comes to supervising a home improvement project, some people find this a chore while others may enjoy checking on the work of the builder or immersing themselves in details on what materials to use. For the latter, after learning from errors from various home renovation projects, a new career pathway may open up.

There are time-starved home buyers who are looking for fully furnished units from developers or newly reconfigured homes that are in a 100 per cent move-in condition. With the experience of doing up their homes, a few individuals may become mini-developers who are able to transform old homes with the needs of the potential end-user in mind.

However, for many people, spending on doing up a home is likely to be pure consumption, unlike the asset enhancements that commercial landlords undertake to generate higher net property income.

Still, it can be all right to spend on sprucing up one's abode to pamper oneself, especially as some of us may become homebodies in a Covid-endemic world. Go ahead to do up your home in whatever way appeals to you but do not expect others to appreciate and value your efforts.