MONTREAL, Québec (CU)_A recent report issued by the Canada Mortgage and Housing Corporation (CMHC) has revealed that house-flipping is on the rise in the Greater Montreal Area, in the eastern province of Québec, a practice which is having adverse impacts on buyers and renters.
According to the report, during the period between January 2016 and the first quarter of 2021, about 8,840 properties were bought and then sold again within 12 months. Of this number, about 53 per cent were single-family homes, followed by condominiums which made up 36 per cent of these resales, while plexes stood at 11 per cent. The CMHC noted that while this practice may be attributable to family or professional reasons which require some households to sell their property, it may also be done by people who expect to realise a quick financial gain.
Considering the profit made on these sales, the analysis revealed that quick resales generated more gains than losses between 2016 and 2020, while the number of resales with positive returns increased throughout this period.
However, when calculating these figures, the CMHC took only took into account the prices at which the property was bought and then at how much it was resold for. This means, the cost of any renovations done on the property and any other brokerage fee incurred have been excluded, which are crucial factors since quick resales of property which received renovation permits made a significantly higher increase in resale value than the median.
In terms of the impact of this practice on buyers, while quick resales is not the key factor determining the current affordability challenges, however, house-flipping creates more competition and as a result, potential buyers may lose out in bidding wars to house flippers and speculative buyers. Moreover, price growth is generally much higher for quick resales in comparison to all market transactions, the CMHC report revealed.
It pointed out that this increase in competition has a noteworthy impact on the mentality of buyers.
“Some households may start having irrational expectations with regard to prices, thinking that they can only increase. Under these circumstances, there could be more and more quick resales in a market where the buyers’ only goal is to obtain a significant and rapid financial gain,” the report reads. “These speculative purchases could therefore amplify the overheating and price acceleration on the market.”
