Spending on a home not always worth it

Avoid over-capitalising expert says

AS INTEREST rates rise and it becomes more difficult to qualify for new home loans, an increasing number of owners are choosing to rather make alterations or additions to their existing home, instead of selling and moving.

However, it really is not a good idea to make extensive changes without first checking to see that you will not be overcapitalising your property, Chas Everitt International property group CEO Berry Everitt said.

“Unfortunately, the money an owner spends on improvements to a property does not always translate into an equivalent increase in its value to prospective buyers.

“And the result is that when you do eventually decide to sell, you will probably not recoup the full cost of the improvements in the sale price, and your potential profit on the property will be eroded.”

Writing in the Prop- erty Signposts newsletter, he said that was why was always best to consult a trained and experienced real estate professional about property values and price trends in your area, before going ahead with any major remodelling projects.

“When you do the calculations, you may find that your money would really be better spent as a deposit on a new home.”

Everitt said another aspect to bear in mind was that the Capital Gains Tax (CGT) exclusion on primary residences was set at R2-million.

“That sounds like a lot to most, and according to SARS it does mean that most primary homes in South Africa will never be subject to CGT.

“However, if you bought your home more than 10 years ago, it’s worth checking that improvements you make won’t push your potential gain on the property over the R2-million mark.”