Wednesday 22 November 2017

'Buy-to-flip' investors take punt on property

Speculators are snapping up properties and 'fliping' them to new owners in hardly any time, writes Mark O'Regan

Stock Image: GETTY
Stock Image: GETTY
Mark O'Regan

Mark O'Regan

'Buy-to-flip' speculators seeking to capitalise on rising home prices are snapping up properties to renovate and resell for a 'quick buck'.

They are increasingly seeking out 'fixer-upper' houses, making some repairs, and "flipping" it to a new buyer as quickly as possible.

It comes as house prices skyrocketed nationwide by almost €24,000 last year.

Dublin property prices shot up by €40,000 during the 12-month period

Flipper investors have been accused of being too fixated on making "turnaround profits", causing further turmoil in an already troubled market.

The practice, also known as "turning", generated big money during the Celtic Tiger years.

There are two distinct types of 'flippers' operating the system.

The first involves a 'smart flip', where a property is renovated before being sold on.

The other is a 'speculative flip', where the investor does nothing to the property, but just waits for its market value to rise.

Ronan Lyons, Trinity assistant professor in economics, says there are already signs "flippers" are creeping back into the market.

"You can see a couple of examples on the property price register, with the same address coming up a year, or 18 months apart.

"This probably involves somebody who has gone in, done up a house, and then sold it on.

"The pressure at the moment is all upward because the construction is not taking place - so renovation is the heart of new-ish housing supply.

"I think we will continue to see over the next three or four years lots of the buying, renovating and then reselling of properties.

Read More: 'Dublin's rental market is totally crazy and bad for mental health'

"However, renovation can be quite expensive - so it will only pay for itself in more expensive locations.

"You're most likely to see this taking place in Dublin, in particular, and maybe to a certain extent in Cork and Galway."

But he warned it is an "expensive game", adding that all sorts of issues "can arise".

Meanwhile, Dr John McCartney, director of research at estate agency Savills, says prices are rising so fast, there is often little need for developers to renovate a property, before putting it back on the market.

"There's no doubt some people will do this. Those more likely to do it are small developers, people who are good at DIY, or who have some building skills.

"However, there are now expectations of strong house price growth, so the easier option is to just buy a property, sit on and flip, without doing a thing.

"That's the ideal; it means you don't have to worry about any construction risk and there's no hassle. You just sit and wait, and flip it a few months later. The only thing is that those involved have to pay Capital Gains Tax."

Last June, the Organisation for Economic Co-operation and Development (OECD) warned that the sharp rise in house prices and property-related lending raised the prospect of another Irish housing bubble.

The OECD's report comes in the wake of a warning from the Fiscal Advisory Council about the risk to the economy of another housing boom.

However, Dr McCartney dismissed the suggestion that we are on the cusp of another boom and bust property cycle.

"The classic definition of a bubble is when asset values get driven up by an abundance of credit, to a level that isn't justified, by market demand and supply.

"I don't think that's happening. What we do have is a dysfunctional housing market.

"We have rapid house price growth, and I think we're going to continue to have that.

"I think it's bad for society - and I think it's very tough on young people. It's also very tough on their parents. It means there has to be all of this intergenerational funding.

"It's also bad for the environment because it's going to lead to urban sprawl and longer commutes."

Dr McCartney said first-time buyers receiving a financial dig-out from the so-called 'bank of mum and dad' had now become the norm.

Sunday Independent

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