Property “flipping” isn’t as popular as it once was in Australia, according to a new report from CoreLogic.
Yes, the process of buying a home, putting a lick of paint on the walls before attempting to sell it for a profit isn’t growing in popularity — despite an influx of television shows showing Australians how to do it each and every night — driven lower by high, and in many instances increasing, transactional costs.
As CoreLogic explains, the percentage of properties flipped in the last financial year was well down on the levels seen in the early 2000s.
“3,861 dwellings were sold after having been held for less than a year nationally with a further 16,749 resold after being owned for between one and two years,” the group said.
“These figures represented 1.3% and 5.7% of all resold property sales over the year.
“In its heyday in the early 2000s, 4.4% of all properties were flipped in less than 12 months and 16% were flipped between 12 and 24 months from previous purchase.”
CoreLogic says this likely reflects the high cost to transact in property in Australia.
“Transacting real estate is an expensive exercise,” the group says.
“Successfully flipping a home involves more than simply selling the property for more than it was purchased for.
“In order to make a profit, Flippers will need to recoup their transactional costs such as stamp duty and conveyancing, as their selling costs such as marketing and real estate agent commission.
“There is likely to also be interest payments on the debt as well as capital gains tax on the profit.”
Despite the costs, of those properties being flipped, most sold for a higher price than what they were originally purchased for, especially in Sydney and Melbourne.
“Over the [year], 10.9% of flips held for less than 12 months were at a loss and 10.1% of flips held for between 12 and 24 months resold for a loss,” CoreLogic said.
That means that nearly 90% of all flips during the year were done so for a profit.
The results largely reflect strong property price growth — especially in Australia’s southeastern capitals — during the 2016 financial year as a result of strong population growth and two interest rate cuts delivered by the RBA.
“Flipping was more prevalent in Sydney, Melbourne and Regional Queensland,” CoreLogic said. “The propensity to flip in Sydney and Melbourne is likely due to the strong run-up in values over recent years.”
Perhaps reflecting higher transactional costs, the group said flips between one and two years have been trending higher over recent times.
That suggests that in order to profit, hold times have lengthened despite strong price growth.
And with property price growth slowing, CoreLogic says it’s now seeing an increase in loss-making flips.
“Although the proportion of flips at a loss has declined from recent highs in 2009 and again in 2012, there has been a clear increase in loss-making flips recently,” it says.
“The rising number of loss making flips highlights there is some financial risk in flipping, keeping in mind that the proportion of loss making flips on a net basis is likely to be substantially higher once expenses are taken into account.”
Essentially, just because it sells for a higher price than it was purchased for does not guarantee a profit.