Flip Flops

The number of properties on-sold for quick profit has almost halved amid a tightening up of tax rules, reports Anne Gibson

Property flipping has flopped. The number of properties on-sold for quick profit has almost halved amid a tightening up of tax rules.

Property “flipping” has flopped in the past two years, as the housing market flattens and people see fewer opportunities to make money from buying and quickly selling houses.

Nick Goodall, research head at property information company CoreLogic NZ, has released data showing flipping has almost halved from 2015 to 2017.

Last year, more than 2100 residential properties throughout New Zealand were held for less than 12 months before being sold for a profit. That was down from almost 4000 such sales in 2016 and more than 4100 in 2015, Goodall said.

He cited two main reasons for the decline in flipping activity.

“The reduction could in part be due to the introduction of the Bright Line Test which has been in place for over two years now, and will reduce the overall profitability of short-term sales, having to pay tax on any profits. And of course the reduction also reflects the slowdown in value growth over

2017,” Goodall said.

Asked for the most expensive house “flipped” recently, he named a Royal Oak property.

The property on Raurenga Ave was sold for $1.95 million on 30 August 2016. That settled on 7 November, 2016. It sold again for $2.786m, with a profit of $836,000, on 7 June

2017.

Barfoots advertised this property as a “blast from the past”, on a 1077sq m site with a four-bedroom family bungalow, in the mixed housing urban zone.

Goodall defined “flipping” as selling twice within a year for a profit, and said it was far more prevalent last

decade. “An interesting reference point is [the previous period of significant growth] in the lead-up to the end of 2007, when there were over 10,000 sales each year turning a profit in less than 12 months, which was between about 7 and 8 per cent of all sales each year,” he said.

In 2015, the previous Government introduced the Bright Line Test, which means that in most cases tax must be paid on profits made from selling a residential property within two years of purchase.

The current Government has announced an extension, so the tax will apply to properties bought and sold within five years.

A capital gains tax on residential property — particularly investment properties — has long been advocated by some, and could see profits from flipping taxed at the flipper’s overall tax rate, without any set time limit.

In general, says Inland Revenue: “If you’re selling a residential property and one of your intentions when you bought the property was to sell it, then you’ll have tax to pay on any profit you make from its resale.

“The tax you pay depends on four things: your intent when you purchased; your history of buying and selling; whether you’re in or associated with the property industry; whether you buy and sell a property within two years.”

Last March, the Herald reported how New Zealand’s real estate watchdog was ramping up its crackdown on house-flipping, by investing in new technology which allows it to track when properties have been quickly re-sold for huge profits.

The move allowed the Real Estate Authority to proactively chase agents who are parties in such transactions, without relying on complaints from the public.

A Mount Maunganui property which sold twice within five months made a gross profit of half a million dollars for a local couple, the Bay of

Plenty Times reported this month. This property was one of nearly

100 in the Western Bay of Plenty that was “flipped” for profit within a

12-month period.

The local man who flipped the property, and asked not to be named, said the apartment on The Mall had a lot of time and money spent on it.