Cash Buyers - I know where at least some of them are coming from.

Dredd_J

I know where a lot of these cash buyers are coming from. Hopefully not all or it will never end.
Its people flipping property. Buying with cash, selling a few months later. Putting that cash back into the market again and then selling again.
There is a group of 4 partners in the company where I work doing it. They dont mind telling us all how its working out for them either.
And having looked up the property price register on some of the properties they are flipping they are making a pretty penny too.
They started doing it for profit for the company, but are now doing it themselves too.

Im sure the government dont care, since revenue is getting the tax that they have to pay on the profits as its not their PPR. People who are doing this, who have no PPR, dont have to pay any tax apart from stamp duty.

So all this cash is just getting recycled every few months.

The CGT exemption doesnt even come into play as its so long term, so I dont see this tactic stopping when thats over either.

xper

Flipping properties in a rising market is nothing new. Often its small building firms taking on a run down property, doing it up at cost and selling it on. With the improvement in the property to a turn-key condition and an increase in general prices over the duration of the renovation, a tidy profit can be made. Then there cash investors who may or may not do much work on the property between buying and selling which makes things a bit riskier. If the don't improve the property, they are relying entirely on the market rise. If they do renovate/extend and they are not in the trade, then the builder's share will eat into ay increase in selling price they achieve. So you have to know what you are doing and/or be lucky.

It's only a tiny minority of properties affected, otherwise the price register would be jam-packed with multiple entries for individual properties. Though in a market with such tight supply as south Dublin, it may certainly have been contributing to bidding wars though and the general hysteria that has led to the Tiggerish price rises.

The majority of cash buyers are not short term flippers. The evidence is that cash buyers have accounted for over 50% of purchases at times in the last couple of years. Nothing like that number of houses reappear for sale within a year. Most cash buyers who weren't building their own PPR, are looking at long term investment and renting out (yields were very good through 2013, less so now).

Flipping can't go on indefinitely. The market needs to be rising at a considerable rate in order to make it a sane investment. I would characterise it as a symptom of the rising market rather than a driver of it.

El_Dangeroso

xper wrote: »

The evidence is that cash buyers have accounted for over 50% of purchases at times in the last couple of years.

Just wondering how we know the amount of cash buyers, where does that data come from?

xper

Well, a rough estimate can be figured out by simply subtracting the number of mortgages drawn down in a given period (from regularly published CSO reports) from the total sales figures on the Residential Property Price Register for the same period. Now, there is lots of problems with that simple calculation, not least that there is a time shift between mortages draw down and sales closing but it certainly gives you the ballpark figure.

Various interested parties (EAs, banks, economists, etc) tend to concur with the genreal figures regarding cash buyers. WHile any of these individually would be taken with a pinch of salt, the general consensus is telling.

There's a thread on propertypin.com that tracks and analyses the regular CSO reports if you want to dig further.

Thomas D

Flipping properties in an idiots way to get rich. High risk, high work with mediocre returns.

MouseTail

Thomas D wrote: »

Flipping properties in an idiots way to get rich. High risk, high work with mediocre returns.

Of course its high risk, but in a rapidly rising market, the returns arent mediocre.

gaius c

MouseTail wrote: »

Of course its high risk, but in a rapidly rising market, the returns arent mediocre.

And if the market isn't rapidly rising?

There's other costs to consider too: Solicitors, etc so if you're not clearing 10% profit each time, you risk getting caught out.

At least it's only cash this time but it's a pity there isn't more productive use it could be put to.

Thomas D

MouseTail wrote: »

Of course its high risk, but in a rapidly rising market, the returns arent mediocre.

The average long term returns are in line with inflation.

The_Conductor

gaius c wrote: »

And if the market isn't rapidly rising?

There's other costs to consider too: Solicitors, etc so if you're not clearing 10% profit each time, you risk getting caught out.

At least it's only cash this time but it's a pity there isn't more productive use it could be put to.

10% would seem unreasonably low, given the work and risk involved- even if it was being purchased for rent, rather than flipping- an ROI of at least 8% would be necessary, to make the figures work.

Flipping has worked for the last 2 years, in the Dublin area- because the figures have added up. They're now slowing rapidly- and even in decline in some areas (whereas they might still be quite acceptable in some unexpected areas (Clondalkin/Lucan/Clonee/Blanch etc).

Its a good way to make money in a rapidly rising market- but once things start to cool- you risk being left with unwanted property on your hands- or a landlord- when you really don't want to get into the Landlord business.

The_Conductor

Thomas D wrote: »

The average long term returns are in line with inflation.

If you look at the Economist's index- they're not even in keeping with inflation. Forestry and a few other sectors, are the few asset classes to outperform in the longer run (which is precisely why forestry makes a high percent of many pension schemes).

Thomas D

Even in a hot market I wouldn't be too keen on it. 100K gross profit would be a huge achievement. Take out refurb costs, associating buying/selling fees. Then you have your capital gains tax. Factor in the hundreds of hours personally invested in such a scheme. What do you have left for suffering the mental anguish of a two year gamble? That's when everythning goes your way.

Zamboni

I am raging I held out on picking up a €100k 2 bed apt last October. Same apts are clearing €160k now. Mental stuff.

gaius c

The_Conductor wrote: »

10% would seem unreasonably low, given the work and risk involved- even if it was being purchased for rent, rather than flipping- an ROI of at least 8% would be necessary, to make the figures work.

Flipping has worked for the last 2 years, in the Dublin area- because the figures have added up. They're now slowing rapidly- and even in decline in some areas (whereas they might still be quite acceptable in some unexpected areas (Clondalkin/Lucan/Clonee/Blanch etc).

Its a good way to make money in a rapidly rising market- but once things start to cool- you risk being left with unwanted property on your hands- or a landlord- when you really don't want to get into the Landlord business.

Well basically it's an investment strategy that is dependent on new entrants to keep prices up, i.e. a pyramid scheme or an exquisite sense of timing.

Dredd_J

Its risky alright, but the risk takers are the ones who make the money. Also the ones who lose it too.
The rest of us can enjoy watching the spectacle but do not make or lose any money.
I wouldnt do it, but maybe if I had a half a million or so stashed away, i could afford a punt.

jay0109

Risk takers on Property don't lose in this country.....the rest of us cover their losses.
It's 'heads I win, tails you lose'

gaius c

Dredd_J wrote: »

Its risky alright, but the risk takers are the ones who make the money. Also the ones who lose it too.
The rest of us can enjoy watching the spectacle but do not make or lose any money.
I wouldnt do it, but maybe if I had a half a million or so stashed away, i could afford a punt.

Oh but we do lose. They bid up the prices of property with zero consequences if they can't afford to pay for it so everybody else has to pay more.
This is why 100% IO mortgages were such a bad idea. If they had some skin in the game, they might be more wary.

HouseHunter13

Some cash buyers I know, 6 in total are all from China, I'm lucky enough to be friends with some of these lads through work. they all saved up around 100k over the last few years and then the rest was sent over from the homeland.

now they aren't buying property in SCD, they like bargains and value, the properties Lucan Blanchardstown Clondalkin areas one splashed on a bit more in Castleknock when the value was a little better, some of their friends who were looking don't see as much value and may not buy now. Apparently in China they can buy a house but you only own it for 70 years and it goes back to the state or something along them lines. It also helps with their citizenship or at least looks good on the application owning property apparently.

just thought I add some evidence to solve the cash mystery