I would get a local real estate agent to look at your PPOR "as is" and tell him/her what you are planning on doing and what it will cost. He should be able to tell you whether you are overcapitalising or not.
Armed with this knowledge you either go ahead because you want to stay there long enough and it is a lifestyle choice, or decide you will move and buy elsewhere to get what you want.
When we renovated six or so years ago, if we had sold straight after, we would not have made anything. We still did the renovation because we wanted to stay here for a while, but if we had done it purely as a money making exercise, it would have failed.
Wylie