House flipping takes a hit: returns fall by 51%

Is the buy, renovate and sell boom over?

The data leaves little room for interpretation: the house flipping frenzy —buying, renovating and reselling within weeks— is taking a historic beating. According to an article in El Mundo, returns on these deals have plummeted by up to 51% over the past year, and housing stock in Madrid has grown by 17% in twelve months. "The market has just changed," says property expert Sergio Gutiérrez, who sees the rise in supply without matching demand as a clear sign of a cycle shift.

Renovation costs: a gap that doesn't add up

One of the thorniest issues in this business is the construction budget. While some complain about outrageous prices —up to 2,500 euros per square metre—, industry professionals put the real range at between 600 and 700 euros per square metre, even with high-end finishes. The difference is huge and partly explains why many deals have become unviable. Those who overpaid for the property and hired very expensive renovations now find that the market won't absorb the finished product at the expected price.

The small investor, caught between rising rates and oversupply

The adjustment is indiscriminate: even the luxury segment isn't spared. The combination of high interest rates, economic uncertainty and growing stock is leaving many flippers with unsold flats and mortgage payments to make. The irony is that, while the individual investor loses money, the Spanish tax authority —through taxes— remains the big winner of the whole operation.

In this context, the mantra that "property never falls" is starting to sustancia ilegal. And the question hanging in the air is whether we're facing a passing correction or the beginning of the definitive deflation of a bubble fuelled by easy credit and greed.