One of the most common decisions facing Melbourne property owners with older homes on good land is whether to renovate or knock down and rebuild. This guide provides a full cost comparison, timeline analysis and financial framework to help you make the right decision for your property in 2026.
Full Cost Comparison — Knock Down Rebuild vs Renovation
| Factor | Knock Down Rebuild | Full Renovation |
|---|---|---|
| Cost per m2 | $2,800 – $4,500 | $1,800 – $3,500 |
| Total cost (250m2 home) | $700k – $1.1m | $450k – $875k |
| Timeline | 12 – 18 months | 6 – 12 months |
| Planning permit required? | Yes (new dwelling) | Sometimes (heritage areas) |
| Structural risk | None — fresh start | Unknown conditions until opened |
| Customisation | Complete | Limited by existing structure |
| Energy rating | New 7-star NatHERS standard | Difficult to achieve without full upgrade |
When Knock Down Rebuild Makes Sense
- The existing home has significant structural issues, asbestos or outdated services
- The land value is significantly higher than the improved value
- You want a completely custom floor plan and full energy efficiency
- The renovation cost exceeds 60-70% of a rebuild cost
When Renovation Makes Sense
- The existing home has sound bones, good floorplan and minimal structural issues
- Heritage overlay prevents demolition
- You want to retain character features that add value (pressed tin ceilings, Baltic pine floors)
- Timeline is critical and you want to minimise construction disruption
Tax Implications
A knock down rebuild resets your property’s cost base for CGT purposes. A renovation adds to the cost base (reducing future CGT). For investment properties, renovation costs are either immediately deductible or depreciable — always get a tax depreciation schedule after renovation.
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