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Real Estate Investar Blog

Auckland housing still flipping hot despite tax penalty

Auckland property speculators are banking $70,000 profit on average from each house sale - despite a home sales test introduced by the Government.

The speculators buy and on-sell houses within short periods of time, often without making any changes to the property - a practice commonly known as 'house flipping'.

The Government's brightline test requires people selling a rental house bought less than two years before to pay a de facto capital gains tax on any sale profit.

However, family homes and commercial properties are exempt from the rule.

Auckland property flippers are making, on average, $70,000 profit on sales, CoreLogic data shows.
SIMON MAUDE/FAIRFAX NZ
Auckland property flippers are making, on average, $70,000 profit on sales, CoreLogic data shows.

Last year, 285 Auckland properties, or 1 per cent of all Auckland sales, changed hands for profit twice in three months, data supplied by property information provider CoreLogic shows.

That figure is twice the national average.

Property flippers were making an average of $70,000 profit on Auckland sales, CoreLogic said.

Flipping has diminished somewhat since the brightline test was introduced in October 2015. In 2007, 2 per cent of all New Zealand homes were being flipped.

However, CoreLogic senior research analyst Nick Goodall said the brightline test "hasn't stopped everyone".

"The practice isn't illegal. Nonetheless, it naturally raises some moral questions, particularly in terms of the original seller receiving true value for money," he said.

Several real estate agents have faced disciplinary action for buying homes from people, without disclosing they are realtors, and instantly flipping them for handsome profits.

Outspoken economist and aspiring politician Gareth Morgan said: "If the market's running hot and demand isn't under control, big deal, you tax the people who are taking advantage of that momentum - but that's not going to stop it, is it?

"Why is the market so hot? Why is demand running like it is?

"The Government will not address the tax issues [around house sales] - they're scared of losing elections."

Home ownership needed to be "brought properly into the Government's tax net", Morgan said.

Auckland's average house price in February was $903,570, according to Barfoot and Thompson data.

WHEN THE TAXMAN CALLS

The amount of tax paid on a house sale profit depends on the personal or company income of the seller.

For instance, if a private individual with no income made $50,000 on a home sale, they would be progressively taxed up to 20 per cent, or $8020.

Another person who had already earned $100,000 in income and made $80,000 profit on a house sale would be taxed at 33 per cent, or $26,400.

Topics: Values / Prices

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