From the “it was too good to be true” department, investigative reporter Kathy Tomlinson peels the speculative skin off the local Vancouver condo flipping practice in this Globe and Mail story.
Buckle up, as editorials are already coming out about this rocky ride and the completely expected push-back from realtors that have engaged in some property transaction flips and profited very handsomely from it.
By looking at the purchases within six Vancouver-area condominium developments, Ms. Tomlinson found that in the three finished developments, “at least 32 per cent of 173 condos flipped at or near completion were resold by buyers who were also real estate agents, along with other speculators with inside access who had bought in early…On average, those players each reaped a gross profit of $145,359. Their collective windfall was $10.6-million.”
And here’s what else is fascinating about all this: “Several additional resales by insiders couldn’t be added up, because they were done through contract assignment, also known as “shadow flipping.” Assignment deals such as that — where an initial buyer sells their contract to another buyer pre-construction — aren’t registered as sales with the land-titles registry.”
The Globe and Mail’s Gary Mason is using the term “shadow flipping” which was used for the “flipping” at higher costs of sales agreements for single family homes in advance of the registered sale of the house. No established terminology has yet been developed for the “shady” markup and transfer of condo assignments prior to occupancy.
The only person who knows how much money has changed hands in these “shady” flipping practices is the developer…but now Canada Revenue Agency has a concept of how much speculator profit is not being reported as income on taxes.
This is a clear example of why condo prices are escalating, and why the Province of British Columbia now wants to force developers to offer pre-construction condo units to all potential buyers at the same time and at the same price.
Cutting out the speculative flipping should provide more stable real estate prices, and some commentators like journalist Gary Mason are suggesting that a house of cards has been made with the current system and it will not take much for it to come crashing down.
“Get ready for all the excuses, and the condescending talk about how we don’t understand how the business really works and how developers need to be able to sell to speculators. Don’t buy it – any of it. It will be self-interested nonsense from people who once filled the financial coffers of the political party previously in power in B.C., likely banking on that government to not change the rules of the game.”
And this just in from the Union of British Columbia Municipalities:
Images: Condo.ca & Mises.org