News & Research
How prevalent is property flipping in New Zealand?22 March 2017
There has been an increase in the coverage of property ‘flipping’ in the media lately, in part due to the exposure of some particularly curious cases where a property was bought and then sold on for a profit, on the same day.
This practice isn’t illegal, as long as there has been full disclosure of any relationships that may have enabled the on-seller to take such a large short-term profit. Nonetheless, it naturally raises some moral questions, particularly in terms of the original seller receiving true value for money.
So just how prevalent is property flipping in New Zealand? It’s a good question, as these multiple same-day settlements – called “contemporaneous sales” – require substantial manual checking to identify. However, a broader analysis of properties flipped for profit within a three month period can give us some useful insight into this phenomenon.
In 2016 a total of 466 properties (0.5% of all sales) sold for profit across New Zealand after being held for less than three months. This is well down on an average of almost 1,400 properties per year (1.1% of sales) for the five years leading into the peak of the market in 2007 and, more recently, slightly down on the 706 properties (0.6% of sales) sold for profit after being held for less than three months in 2015.
The drop could be attributed to the introduction of the ‘Brightline test’ which ensures the appropriate tax is applied to capital gains on any property bought after 1 October 2015 and sold within two years. Yet clearly this capital gains tax hasn’t stopped everyone, and why would it when you can bag almost $60,000 profit on average (before tax) in less than three months?
While property flipping isn’t quite as prolific as it was almost a decade ago, it’s still delivering some pretty impressive results – particularly in Auckland, where the greatest capital gains can be made.
Last year 285 Auckland properties (1.0% of Auckland sales) changed hands for profit twice in three months. In stark contrast, down in Christchurch where the market is hardly moving, only 6 properties (0.1% of sales) met this criteria. Furthermore, the average profit for these Auckland properties was $70,000, compared to $38,000 in Christchurch.
Much like New Zealand as a whole, Auckland experienced greater turnover in the five year lead up to the 2007 peak when an average of 850 properties (2.0% of sales) per year were flipped. But due to the average value of property being less than half as much as today, the typical gross profit then was only about $33,000.
Elsewhere in the North Island, it’s a similar story. Hamilton and Tauranga’s property markets have also showed considerable growth over the past few years, with an increase in this short term sale-for-gain behaviour (although the numbers are relatively small due to the overall size of the markets). Hamilton had 31 (0.9%) short term sales, with an average $45,000 profit, while Tauranga saw the multiple sale of 15 properties (0.4% of sales) in three months, although they each bagged an average $70,000 – the benefit of higher value property.
Historically Hamilton stands out, with a flurry of such sales in 2005 when 76 properties (or 1.5% of sales) were flipped. Meanwhile Tauranga never saw more than 1% of sales shifted as quickly, even at its 2003 peak (52 properties on-sold on within 3 months).
Further south, in Wellington*, the propensity for flipping is much lower, with the percentage of sales during the mid-2000's not even nearing 1%, and only 66 properties sold more than once during the ‘height’ of the market in 2005. In the last two years there have been 15 (in 2015) and 36 (in 2016) property owners taking this short term profit. Both equate to less than half a percent of all sales.
And finally, in Dunedin we’re talking about less than 40 properties per year during the last boom cycle (about 0.8% of sales), and only 11 last year (0.4%).
So while there’s been a fair amount of chat about flipping lately, the stats provide us with a much clearer picture of reality. Yes, Auckland has been a red-hot market, as has Hamilton, but elsewhere in New Zealand it’s occurring on a smaller scale.
And in a historical context, things are much improved in 2017: it’s encouraging to see that this morally-questionable behaviour is not quite as prevalent as it used to be.
*Wellington in this analysis is the four city councils together – Wellington, Lower Hutt, Upper Hutt and Porirua.