How strategic renovations can maximise property value, boost rental returns

Even though the Reserve Bank of Australia (RBA) decided to hold the cash rate at 3.85 per cent in July 2025, demand for housing remains strong.

With affordability still a major challenge and limited supply across the country, more Australians, home owners and investors alike are turning to renovations as a practical way to get ahead.

Whether it’s upgrading a fixer-upper or modernising an older family home, smart improvements are helping people make the most of what their bank balance will allow.

Why renovation is back on the radar

Rather than wait out high prices or struggle to find new stock, many buyers and investors are choosing to add value through renovations.

It’s a flexible and cost-effective way to create more liveable, functional spaces and potentially unlock substantial capital growth.

KPMG’s 2025 Residential Property Market Outlook expects unit prices (including apartments and townhouses) to rise by 4.6 per cent in 2025 and 5.5 per cent in 2026.

This is helping to drive interest in properties with renovation potential, especially smaller dwellings, which remain a more affordable entry point into the market.

In the same analysis, KPMG’s data shows that national stand-alone home values are tipped to grow between 3 per cent and 4.6 per cent this year, driven by a few key factors:

• Interest rates: While the RBA paused rate cuts in July, earlier reductions this year have already supported buyer activity. Many economists expect further cuts in the 2025–26 financial year. According to The Australian, the central bank’s decision to hold in July was seen as a temporary pause, not a change in direction, with rate relief still likely in the months ahead.
• Low housing supply: With listings still well below average, competition for quality properties is pushing more people toward renovation as a way to secure or upgrade their home.
• Positive market sentiment: Cotality reports that 65 per cent of real estate agents expect property prices to rise this year, with one in four predicting growth of more than 5 per cent.

In this environment, renovations offer a real opportunity to add value to a property, especially in tightly held suburbs where new supply is limited. While many buyers are holding out for better borrowing conditions, others are taking a long-term view and acting now to get ahead of the next growth cycle.

Renovation as a smart move

Renovating is proving to be a good hedge against rising construction costs and delays. Instead of building from scratch, investors are using equity in their existing properties to fund upgrades, giving them more control over budgets and timelines.

Renovated properties also tend to stand out as demand picks up again. Buyers and renters are looking for homes that offer comfort, flexibility and good value, exactly what a thoughtful renovation can deliver.

How to fund your renovation

There are a few common ways investors are financing their projects:

• Equity release: tapping into existing capital through refinancing
• Construction loans: suitable for structural or larger renovations, with progress payments
• Personal or unsecured loans: handy for smaller updates like paint, fixtures or cosmetic work.

The right option depends on your renovation goals, project size and cash flow.

Where to spend for the best returns

When renovating to enhance resale value or maximise rental returns, prioritise upgrades that align with buyer and tenant demand:

• Kitchens and bathrooms: these are big-ticket areas where modern finishes and good design make a lasting impression
• Flexible spaces: think home offices, study nooks or multipurpose rooms that reflect today’s work-from-home and lifestyle trends
• Energy efficiency: solar panels, insulation, double glazing and efficient lighting can reduce running costs and appeal to eco-conscious tenants
• Outdoor living: decks, patios and landscaped gardens can make a big difference, especially in Australia’s climate

Don’t forget depreciation

Renovations can also unlock valuable tax benefits.

According to BMT Tax Depreciation, renovated properties often see a 15–25 per cent boost in depreciation claims compared to unrenovated ones.

Getting a professional depreciation schedule from a qualified quantity surveyor ensures you capture all eligible items, boosting after-tax returns and improving cash flow.

With interest rates expected to ease later in 2025, housing supply still tight and buyer demand continuing its upward trajectory, 2025 is shaping up to be a strong year for renovations.

Whether you’re adding value for resale, increasing rental income or simply making a property more liveable, strategic upgrades can help you stay ahead of the market and make your investment work harder.