Amid the dazzlingly growth of home prices in the GTA, home flipping has drawn remarkable interest from investors and speculators alike. According to the provincial government, in Toronto last year, 8.5 per cent of condo sales transactions were flips, and some 121,000 homeowners held more than one residential property in the Greater Toronto and Hamilton Area, more than double the 2006 figure.
Highlighting the property flipping practices and the dazzlingly profits generated from it were the investments in one of the hottest buildings in Charles street downtown. Dubbed as X2 building, the 49 storey glass tower has become a lucrative market for condo flippers and attracted speculators in droves. A Globe investigation reveals that about 21 per cent of units were sold again within two years, with unit flippers reaping an average gross profit of $126,398 – or $478 for each day while the units were in their hands.
Anecdotal evidence indicates that many X2 flippers have a Chinese background who believe that the Canadian real estate market has an enormous potential for growth, just like the remarkable run of the housing markets in China that had turned investors into millionaires overnight. Some investors were newcomers in Canada, who, facing language barriers and job market challenges, see home flipping as an easy and quick path to prosperity and wealth.
“No jobs in Canada can bring you the money in the same level as the profits by flipping properties, “ said a realtor, “To make a living in Canada, many newcomers choose to give up seeking employment but resort to property flipping”.
Property flipping practices -- with short-term of home ownership -- use stock trading strategies and mostly rely on market timing. A successful real estate speculator must sell greed and buy fear – he or she must have the courage and discipline to buy property when everyone else wants to sell, and sell when everyone else wants to buy.
However, most flippers are gripped by herd mentality and just doing the opposite. According to a study by brokerage firm Realosophy, in 2016, frantic buyers bid up purchase prices in GTA to the point where even surging rental prices could not cover the expenses. But a flood of speculators jumped on the bandwagon -- based on an assumption that bigger gains would come from the sale of the property later on. As the number of empty homes rapidly rises, several communities with high concentration of Chinese Canadians – including Oakville and Markham -- face a vacant home crisis.
In fact, the monthly mortgage payments and utility expenses have left many homebuyers experiencing buyers’ remorse, forcing them to back out from the market altogether. According to a CIBC study, 81 per cent of millennial homeowners are looking to sell because of house poor, with sixty-three per cent saying their mortgage and housing costs are only leaving them drained of cash.
The seemingly lucrative practice of home flipping is a highly volatile business and isn’t an average Joe’s job. When fears and anxiety get the best of you and take over rational decision making, the dream of financial prosperity can quickly turn into a nightmare, leaving home flippers to lose their shirts. In fact, study shows that only less than 4 per cent of the population can fit into a trader profile or cut out for the job as a home flipper.
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