Property investment seems to be flipping out. An investigation has been launched in Auckland in response to two homes being sold five times in four days (1). House flipping in the USA has peaked for the first time in the 3 years to December 2016. (2) In 2015, £4.8 billion worth of homes were flipped across England and Wales. (3) Find out what’s behind the trend, and why it may be important we keep a close eye on it.
Property “flipping,” also known as “buy-to-sell,” is a property investment strategy where an investor buys a property with the goal of reselling it for a profit. To qualify a sale as “flipping,” a property needs to have been sold “twice or more within a single year.” (1)
At Property Moose, we pay close attention to property trends in an attempt to identify what the next exciting opportunity could be, factoring in market sentiment and conditions. Recognising the potential power of the strategy, we recently launched a buy-to-sell/flipping product.
And since we’ve been keeping an eye on the trend, we’ve noticed some fascinating headlines from across the globe.
New Zealand: Two properties sold five times in four days
The truth about Auckland’s flipping scene was recently uncovered by The Guardian. The article explained how an investigation has been launched on account of two homes being sold five times in the space of four days. (1) Auckland is New Zealand’s largest city and has a reputation for being the world’s hottest property market.
One of the sales under investigation is a grand Victorian farmhouse. It was sold for “NZ$1.45m (US$1m) in February of last year, sold again on 4 August for NZ$2.4m and bought four days later by property investor Treasure Plus for NZ$2.8m.” (1)
In GBP, that works out to be a jump from £848,858.54 to £1,639,175.11* in the space of 6 months. The value of the property almost doubled, rising by £790,316.57. As a result, The Guardian dubbed it as a “classic example of flipping.” (1)
In 2016, 7.4% of property transactions in Auckland were identified as potential examples of “flipping.” (1)
USA: House flipping has picked up for the first time in 3 years
The trend is not exclusive to Auckland. Trulia, a US-based online real estate resource, conducted a comprehensive study around the trend. The results clearly showed that “Nationally, house flipping is on the rise.” (2)
By analysing the number of flipping sales in the US between 1st January 2016 and 31st December 2016, Trulia found that “Nationally, home flipping has picked up for the first time in three years, increasing to 6.1% of all home sales in 2016 from 5.3% the year before.” (2) The research highlighted that property investors are “as active as they’ve ever been.” (2)
UK: In 2015, £4.8 billion worth of homes were flipped across England and Wales
May 2016 showed the fastest ever recorded national average time to sell a property, as measured by Rightmove. (5) According to Rightmove, it only took 57 days on average to sell a house in the UK in May 2016. This was the fastest ever recorded time to sell since 2010, when Rightmove first started recording the trend.
Time is of vital importance to property flipping. It’s therefore, no surprise that in 2015 “£4.8 billion worth of homes were flipped across England and Wales, up from £2.8 billion in 2010, with homes flipped in virtually every market.” (3) To put that into perspective, “3% of the homes sold in the last 12 months were properties which had been bought less than a year before, a post-recession high. This means 6% of all transactions in England and Wales are generated by people flipping homes.” (3)
Chelsea and Kensington, where the average house price is £1.3 million, regularly topped the league table for the “numbers of homes bought and sold within a year.” (3)
Interestingly, Burnley, where the average house price is just £65,000, regularly topped the same list. (3) In light of this, it seems property flipping isn’t exclusive upmarket homes. In fact, Burnley has been nicknamed the “flipping capital of the North,” as “flippers buy homes for 5% above the local average and sell them on for 30% more.” (3)
A cause for concern?
It’s easy to understand, in the extreme case of Auckland, why an investigation was launched. It’s true that, “Any time transactions take place very quickly you have increased concern to make sure all parties are fully informed of the decisions they are making.” (1)
On the flip side: Do micro developers play a vital role in improving housing stock?
Countrywide noted that, “Those people who buy, refurbish and sell on individual homes also play a big role in housing delivery by improving the existing housing stock and carrying out the work needed to bring empty homes back into use.” (3)
In response to Stamp Duty increases and the psychological deterrent this can put on second home buyers, Countrywide made a valid point. They explained, “Increasing the amount of Stamp Duty payable by everyone who owns more than one home will help some first time buyers, but at the same time, the housing market is a complicated ecosystem. With at least two million homes changing tenure over the last decade, there is a danger that the Chancellor’s broad brush approach will deter those who play a vital, and often overlooked role, in improving housing stock.” (3)
In fact, it was estimated that in 2015, “micro-developers” who refurbish homes whilst flipping them, improved 30,000 homes. (3)
Bloomberg argued a similar point. “Flippers can also provide a valuable service to the housing market by investing in needed improvements that owner-occupiers might not have time for.” Likewise, the report published by Trulia noted that “flippers in Las Vegas are seeking building permits at the highest rate since 2000, suggesting that they’re making substantial repairs and not simply buying homes to ride local price appreciation.” (4)
The trend is certainly something to keep an eye on. While it’s hard to directly explain why flipping has been trending, rapidly rising house prices play a major role.
“Home price gains in 2016 were the most since 2006, and prices in many markets are now back to their pre-recession peaks.” (2) For now though, flipping provides “improvements to the housing stock for buyers who don’t have time or cash to improve a home themselves.” (2)
Flipping requires skill and expert knowledge, but, as indicated in the examples above, the gain can potentially be substantial.
To find out more about our buy-to-sell product, click here.
Written by Jenna Kamal
Sources
*31st January, Google Finance, 1 NZD = 0.59 GBP.
- https://www.theguardian.com/world/2017/jan/18/flipping-hell-new-zealand-property-frenzy-as-two-houses-sold-five-times-in-four-days
- https://www.trulia.com/blog/trends/house-flipping-2017/
- http://www.countrywide.co.uk/media/59534/flipping-property-and-the-role-of-micro-developers.pdf
- https://www.bloomberg.com/news/articles/2017-01-25/americans-are-flipping-houses-like-it-s-2006
- http://plc.rightmove.co.uk/~/media/Files/R/Rightmove/house-price-index/house-price-index-june-2016.pdf
Disclaimer and Legals
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