House-flipping not what it used to be

Claims that the practice of flipping residential properties as an investment option is rife in Auckland are simply not true, new data released to reveals.

There is no end in sight to the housing affordability issues plaguing Auckland and, as a result, fingers continue to point at investors as being a big part of the problem.

One of the accusations levelled at investors is that they routinely engage in the flipping of properties to make a quick profit and that this practice has led to the escalation of house prices.

A recent example of this was the coverage of a case where two neighbouring South Auckland properties were sold five times in four days.
However, new CoreLogic data shows that the prevalence of flipping in today’s market is well down on its prevalence in past years and property booms.

According to the data, 7% of Auckland sales in 2016 were properties that were sold within a year – but this is as compared to 11.7% at the peak of the last boom in the mid-2000s and 9.2% in the mid-1990s.

Data from Myvalocity serves to further support this picture.

It has just 4% of sales in Auckland in 2016 being due to flipping. This is as compared to 7% in 2015, 6% in 2014, and 5% in 2013.

CoreLogic senior research analyst Nick Goodall said the percentage of properties being turned over quickly is well below previous ‘boom’ markets in both the 2000s and 1990s.

One reason for this is likely to be the introduction of the bright line test, which taxes capital gains made on property sales within two years, and which has had an impact on the type of extreme flipping activity often reported on.

But he said another reason is the much higher value of properties now as compared to the past.

“Properties were much cheaper back in the mid-2000s boom, but now the average price of an Auckland property is at the $1million mark and that makes flipping more risky and much more difficult.

“You would have to have a pretty confident and have a big appetite for risk to be an avid flipper these days. Yes, there’s the prospect of capital gain, but the initial outlay and deposit is much more.”

While there might be a focus on flipping as a rampant practice, the facts simply don’t back up the hype, Goodall said.

“Yes, there might be the extreme examples we see reported and it is easy to see all the examples touted publicly and think that flipping is a widespread practice.

“But it is not happening every day on every street in every suburb. That is simply not the case. The extreme cases are unusual.”

He added that while the practice of flipping should be monitored, generally if people want to risk buying a property to make some gain on and pay the tax, that is not illegal.

For NZPIF executive officer Andrew King the idea that investors spend their time flipping properties is another of the frequently repeated myths out there – which persists despite evidence to the contrary.

“You will see individual instances of extreme flipping, as in the recent stories to hit the news. But it is unusual. And getting more so due to the bright line test which we support.”

But rental property owners are not speculators or traders and, as such, don’t tend to be into flipping properties, he said.

“It’s worth noting that a good chunk of the property trading going on involves people who buy a property, live in it, do it up to add value and then sell it in quite a short space of time.

“Under the bright line test, if you own and live in a property you can sell a property twice within two years without having to pay tax on it. Although if you do that three times in two years, you do have to pay tax on it.”

King said that people who did that are not classed as property traders while people who don’t live in a property and do the same are classed as traders.

“And yet all such transactions would be captured in the property flipping data.”

Analysts at both CoreLogic and Myvalocity said it was too soon to tell if the new investor focused LVRs have had an impact on the amount of properties being flipped.