Welcome to our February 2023 newsletter. We will look at interest rates, property prices and a look into the hidden costs of building your own home.

Interest Rate Update

The RBA has again decided to lift the cash rate by another 0.25% at its February meeting, after the break in January, taking the cash rate to 3.35%.

Inflation rose to 7.8% in the December 2022 quarter, putting more pressure on the RBA to raise interest rates. This was somewhat expected with the increased spending by consumers over the Christmas period.

The RBA governor, Philip Lowe, has indicated that there could be further increases in interest rates over the next few months to combat the high inflation and return it to it to target levels.

Macquarie Group’s Chief Economist, Ric Deverell, discussed the market and what it might look like in 2023 in this great article.

His three key takeaways for 2023:

1. While inflation will take time to reduce to historic averages in Australia, the headline rate is projected to begin falling in 2023.
2. Falling inflation would in turn take pressure off the RBA to keep hiking interest rates – meaning the number and pace of rate rises is set to slow.
3. While property prices are expected to fall further this year, the market is expected to stabilise towards the second half of 2023.

Property Prices

The property market was its usual slow self over the Christmas period due to most real estate agents and other people in the sector taking a break. Proptrack’s senior economist Paul Ryan said that the market picks back up after the Australia Day long weekend. It is likely that the market will continue it’s slowing down with the high levels of inflation and continuing increase in interest rates.

According to CoreLogic, Melbourne property prices were down 1.1% in January taking the peak to trough decline to 9.3%. With houses dropping 10.8% and units dropping 6.1% from their peaks.

Source: CoreLogic

Hidden Cost of Building

As clients start to grow their families they naturally get to a point where they need more space. This normally leads to a discussion of build vs buy. When looking at buying there is clear costs involved such as stamp duty and agent fees for selling your current property. Whereas with renovating a lot more of these costs can be hidden.

Below is a list of estimated costs when considering building. You may be surprised to see what these costs add up to.

• Architect fees
  • For an architect to work with you to design your house inside and out, provide all the required documentation to council plus the builder can be anywhere from 5-15% of the build cost.
  • To project manage the build process is normally a monthly fee from $2-4k depending on how involved they are. So, for a 12 month build the costs to manage could be anywhere from $24-48k
• Specialist fees
  • Town planners (to get through council) $10k (optional)
  • Soil testing $1k
  • Land and titling survey $3.5k
  • Water report $1k
  • Arborist report $2.5k
  • Quantity surveyor $2k
  • Engineering $5-15k
  • Building surveyor $5k
• Council fees
  • Planning application $1k
  • Advertising sign $500
  • Building permit $1k

So, for example on a build cost of $1m you would be looking at costs of:

• Architect fees = $100k
• Project management fees = $25k
• Specialist fees = $35k
• Council fees = $2.5k
• Total = $162.5k

To compare this to the cost of selling a $1m house and buying a $2m place:

• Sale costs (agent fees and marketing costs) = $30k
• Stamp duty and other settlement costs = $120k
• Total = $150k

Other potential costs to be considered would be rental cost while the build is on or when you are in between houses e.g. sold current place and in the process of buying upsize property.

The above is purely looking from a cost perspective and doesn’t consider the ability to create a custom home for your needs with a builder.

For more information on the upsizing process refer to or August newsletter or our upsizing flyer