IS HOUSE FLIPPING STILL A THING?

Is house flipping still a thing? House flipping—the practice of purchasing properties, renovating them, and selling them quickly for profit—has long been a popular investment strategy in New Zealand. However, recent years have seen significant shifts in the landscape of property trading. Factors such as legislative changes, economic fluctuations, and evolving market dynamics have reshaped the viability and attractiveness of house flipping. This comprehensive analysis delves into the current state of house flipping in New Zealand, examining its challenges, opportunities, and future prospects.

Understanding House Flipping

House flipping involves acquiring a property, making improvements—often through renovations or refurbishments—and selling it within a short timeframe to capitalize on increased value. The goal is to achieve a profit margin that justifies the investment of time, effort, and capital. Historically, this strategy has appealed to both professional investors and amateur “mum and dad” renovators seeking to supplement their income or build wealth. (If you are wondering if selling your home is taxable, see this article)

The Impact of Legislative Changes

In recent years, the New Zealand government has implemented several legislative measures aimed at curbing speculative property trading and stabilizing the housing market. One of the most significant changes has been the bright-line test. Originally introduced in 2015 as a two-year period during which profits from property sales were taxed, the test was extended to five years in 2018 and then to ten years in 2021. This extension means that any residential property (excluding the primary residence) sold within ten years of purchase is subject to income tax on the capital gains. This was then further amended in 2023, so that bright-line period was reduced back to 2 years (backwards and forwards) from 1 July 2024.

Property accountant Garreth Collard of EpsomTax.com Limited explains that while professional traders have always been liable for tax on their gains, the bright-line test’s extension has particularly impacted amateur flippers. He notes, “The bright-line test has just made it harder for the weekend warriors.” (OneRoof)

Decline in Flipping Activities

Data indicates a marked decline in property flipping activities. According to figures from OneRoof’s data partner, Valocity, the number of properties resold within 12 months of purchase dropped from 1,620 in the first half of 2020 to just 641 in the same period of 2021 (OneRoof). This significant reduction suggests that legislative measures and market conditions have deterred many from engaging in short-term property trading.

James Wilson, Valocity’s Director of Valuation and Innovation, observes that property flipping was not as prevalent as often assumed, noting that over 56% of resellers were first-home buyers, and another 25% were investors with only three to five properties (OneRoof).

Economic Factors Influencing House Flipping

Beyond legislative changes, several economic factors have influenced the feasibility of house flipping in New Zealand:

Rising Construction Costs

The cost of building materials has escalated sharply, driven by global supply chain disruptions and increased demand. This surge in expenses has squeezed profit margins for those looking to renovate and sell properties quickly (Stuff).

Labor Shortages

A shortage of skilled tradespeople has led to delays and increased labor costs. For flippers, extended project timelines can result in higher holding costs and reduced profitability (Stuff).

Market Volatility

Fluctuations in property values add an element of risk to flipping ventures. While some regions have experienced significant appreciation, others have seen stagnation or declines, making it harder to predict returns on investment (OneRoof).

Shifts in Investor Behavior

In response to these challenges, investor behavior has evolved. Mortgage broker Kris Pedersen notes that many “mum and dad” investors have shifted their focus to new builds. By purchasing new or off-the-plan properties, they can still claim mortgage interest deductions and are subject to a shorter bright-line period, making this strategy more attractive under the current tax regime (Stuff).

This shift has opened opportunities for professional traders. With less competition from amateur flippers, experienced investors can negotiate better deals and potentially achieve higher profit margins. However, they must still navigate the challenges of increased costs and market uncertainties.

Case Studies: Flipping in Action

Despite the hurdles, there have been notable instances of successful flips:

• Auckland Example: A renovated 1960s house in Avondale was purchased in September 2020 for $1.32 million and resold in November for $1.45 million, yielding a $130,000 profit within weeks (OneRoof).

• Wellington Example: A property investor acquired a bungalow in Miramar for $620,000 and sold it four months later for $1.408 million, demonstrating the potential for substantial returns even in a challenging market (OneRoof).

These cases highlight that while flipping is more challenging, opportunities for profit still exist, particularly for those with experience and the ability to navigate the current market landscape.

Future Outlook for House Flipping

Looking ahead, the future of house flipping in New Zealand will likely be shaped by several factors:

Legislative Environment

Any further changes to property taxation or regulations could impact the attractiveness of flipping. Investors must stay informed about potential policy shifts that could affect their strategies.

Economic Conditions

The broader economic environment, including interest rates, employment levels, and consumer confidence, will influence the housing market. Stable or growing economies may provide more favorable conditions for flipping.

Adaptation and Innovation

Investors who adapt to the changing landscape—such as focusing on energy-efficient renovations or targeting emerging markets—may find new opportunities for profitable ventures.

Conclusion

House flipping in New Zealand has become a more complex and challenging endeavor due to legislative changes, economic pressures, and evolving market dynamics. While opportunities for profit still exist, they are increasingly confined to those with expertise, strategic foresight, and the ability to navigate new market realities. Investors must weigh the risks carefully and adapt their approaches to remain successful in this evolving landscape.

Further Reading

Should you buy an existing house, or a new one, or a #newbuild e.g. an “off the plans” rental? We weigh up the pros and cons here. Contact us for a chat