Home renovations in Australia hit a 14–year high over the September quarter, with the volume of projects growing 11 per cent year–on – year to $9.35 billion in chain volume terms. Buyers in the business of flipping houses are starting to come unstruck with many finding they have mistimed the market and now face substantial losses.
In the past 2 years a buyer frenzy across Sydney saw old houses ripe for renovation being snapped up for inflated prices by investors hoping to make a tidy profit after a quick makeover. In a hot market it was a tried and tested method that could garner clever investors hundreds of thousands of dollars in profit. But prices have now fallen 9.5% since they peaked in July 2017 and those who bought and renovated just as the market turned are facing problems when they go to sell.
“Now is not the time to be flipping director at Ray White Surry Hills Ercan Ersan said “ last year there was a real fear of missing out, there was a sense the market would keep going up and up, but, whether it’s shares, property or cash itself, markets fluctuate”.
One of Mr. Ersan’s clients timed the Sydney market to perfection, buying a rundown in Petersham for $1 million in February 2017 and after paying an estimated $40,000 in stamp duty and at least $240,000 in renovation costs, sold the house again in April this year for $1.79m. Of course one has to consider the capital gain tax aspects, depending on the tax treatment applied but that’s still a handy profit by anyone’s estimate.
Others have not been so lucky and are now caught out in the current downturn “anyone who bought in that period (between 2016 & 2017) and is now selling is doing it tough and they either have to accept current conditions or look at holding onto that property for at least the next 3-5 years he said.
Over the 12 months to September 2018, 1.8% of Sydney properties resold within 1 year of the property being purchased, down from a recent peak of 3.1% in June 2015, according to new data from CoreLogic.
“As dwelling values trend lower across Sydney, loss making re-sales are gradually rising, which will make it harder for flippers to turn a profit. Over the 12 months ending September 2018, 5.8% of Sydney re-sales transacted at a gross loss, CoreLogic’s head of research Tim Lawler said.
“As the market continues to slow we would expect flipping to become less common due to weak prospects for fast capital gains.”
One property currently listed for sale is a small three bedroom terrace in Newtown that last sold in October 2017 for $1.3 million after 15 days on the market. A year on, and despite being completely “transformed”, the newly renovated cottage is being marketed at $1.225 million after 84 days on the market. With an estimated stamp duty bill of 60k and a conservative 50k makeover budget, the owner is likely to lose at least 185k if they sell at the current advertised price.
Selling agent Darren Pierce said the vendors had renovated several other properties around Sydney but had been caught out in the current market. “They’ve been good at buying and renovating properties but they were not aware of what was coming; like a lot of people that are in the same boat.”
“The vendor isn’t silly, they are aware of the market and their choice is to sell. It’s taken us a while but the price we have it listed at now we’ve started to engage with the market”.
They started with a buyers guide at $1.4 million and have slowly dropped it down to $1.225 million.
Mr Ersan said the current market had not stopped builders, renovators and flippers looking for good deals around Sydney.
Residential properties in Sydney’s south-west are the most likely to be flipped with 3.2% of houses re-selling within 12 months.
The change in the market caught everyone by surprise but they will always be out there. Seems timing is everything; but we all knew that; right?
Courtesy - Ingrid Fuary-Wagne (AFR)