NRAS - is it worth it?

[blahblah1961]

OK - been reading all these posts but can't seem to find anyone who has actually invested in this nor posted their postive experiences. Are you all keeping your success a secret. Seriously - heads up to us all if this is a potential risk???? Anyone?

 

[NedKelly]

The thing that worries me about NRAS is the fact that the government are involved, especially this government. You just have to look at what the NSW government did with the 60 cent solar tariff that was reduced to 40 cents from 1 July 2011. The Government announced the scheme was costing too much and just reduced the rate. They haven't even changed the legislation yet.

If you look at what the government did in a knee jerk reaction to the livestock industry after a "four corners" documentary they are capable of anything.

Wait till Gillard sees this as a vote winner:-

http://realestate4ransom.com/


http://smh.domain.com.au/home-inves...blog/real-estate-4-ransom-20110901-1jnom.html

"It’s central point that the current property system allows investors and speculators to profit from low land taxes and negative gearing, while simultaneously reaping capital gains growth through infrastructure upgrades paid for by taxpayers, is arguably spot on."

 

[truong]

OK - been reading all these posts but can't seem to find anyone who has actually invested in this nor posted their postive experiences. Are you all keeping your success a secret. Seriously - heads up to us all if this is a potential risk???? Anyone?

NRAS has been very good to me. When the GFC hit I decided to get rid of a few –CF properties and replace them with a smaller number of neutral or positive ones. I stumbled on an NRAS property and since then have bought a few more.

My experience has been mostly positive.

Pros:
- close to neutral or slightly positive CF, owed to grant. When grant ends after 10 years, the property will be +CF on its own feet anyway.
- discounted rent gives you literally unfair advantage over other properties
- very quick to rent. Tenants try hard to keep their tenancy
- automatic rent increases, no negotiation needed
- new properties: almost nil maintenance, large depreciation

Cons:
- most NRASs are located in large developments on the edge of urban areas (so you should try to find one in a smaller niche development – even large developers have these from time to time)
- erratic bank valuations due to few comparables
- off the plan (make sure your finance is water tight)
- more limited financing (however this is getting easier by the day)
- NRAS management fees

Where there’s no difference with normal properties:
- same price as other properties in the same development
- same CG potential as any other local property
- check that you have full title
- own choice of tenants
- not social housing (tenants are middle class), number of NRAS’s capped per development
- able to sell at any time, incuding to non-investors.

I’m quite pleased with my oldest NRAS which is now in its third year (still too early to make a judgment on the other 3).
- it’s been really smooth sailing
- original cost $315K, revalued at $375K two years later when refinanced, now worth probably $365K. ROI 22% per year.
- feeling really secure and if I had no other properties than these I'd be watching the current economic turmoil with absolute detachment ! Basically I’ve got 10 years to ride out any capital loss and hopefully catch a cycle or two.

 

[euro73]

NRAS has been very good to me. When the GFC hit I decided to get rid of a few –CF properties and replace them with a smaller number of neutral or positive ones. I stumbled on an NRAS property and since then have bought a few more.

My experience has been mostly positive.

Pros:
- close to neutral or slightly positive CF, owed to grant. When grant ends after 10 years, the property will be +CF on its own feet anyway.
- discounted rent gives you literally unfair advantage over other properties
- very quick to rent. Tenants try hard to keep their tenancy
- automatic rent increases, no negotiation needed
- new properties: almost nil maintenance, large depreciation

Cons:
- most NRASs are located in large developments on the edge of urban areas (so you should try to find one in a smaller niche development – even large developers have these from time to time)
- erratic bank valuations due to few comparables
- off the plan (make sure your finance is water tight)
- more limited financing (however this is getting easier by the day)
- NRAS management fees

Where there’s no difference with normal properties:
- same price as other properties in the same development
- same CG potential as any other local property
- check that you have full title
- own choice of tenants
- not social housing (tenants are middle class), number of NRAS’s capped per development
- able to sell at any time, incuding to non-investors.

I’m quite pleased with my oldest NRAS which is now in its third year (still too early to make a judgment on the other 3).
- it’s been really smooth sailing
- original cost $315K, revalued at $375K two years later when refinanced, now worth probably $365K. ROI 22% per year.
- feeling really secure and if I had no other properties than these I'd be watching the current economic turmoil with absolute detachment ! Basically I’ve got 10 years to ride out any capital loss and hopefully catch a cycle or two.

Everyone needs to make their own decisions on the merit of any investment, whether it be a property, shares, or anything else. Form my perspective ( and its mine- doesn't have to be yours) the coming years represent limited opportunity for capital growth.

I say that because, while there are sure to be exceptions, broadly speaking the capacity for property to grow aggressively from todays price points, given credit restrictions and borrowing capacity restrictions- is limited. Its just a mathematical fact. If that's something you disagree with or cant subscribe to, so be it, and I can obviously be wrong- but for most people the capacity to borrow 10 or 15% more, year on year, to fuel the growth of the last 12-15 years, just isn't there. That kind of growth is OVER for the time being.

Then there's the debate around supply and value- we constantly hear about under supply, but in Queensland, we are already seeing significant valuation decreases occurring state wide, and a glut of excess units on the Gold Coast. Similarly in Melbourne, too many units coming onto the market this year and next year. Ask anyone you know who has purchased in Qld lately- they'll tell you what I'm telling you.

NRAS offers you the cash flow to buy yourself time. I see it as a cash cow that will generate 120-130K tax free over ten years, some of which will be used to cover your holding costs, and the balance of which should be redirected to paying down your PPOR, saving you years and years off your mortgage, and saving you tens ( or hundreds) of thousands in repayments. And that's all tax free when you sell it!!! And the beauty is- you still get to run these things negatively with the tax man, so you ALSO get depreciation, gearing deductions, ON TOP of the 120-130K tax free.

So, would you rather follow a strategy where you pursue more conventional Capital Growth potential properties, which relies upon you running a (significant) negative gearing strategy in the hope your profits outweigh your costs (by enough to cover the CGT you will have to pay, by the way) in a market showing little sign of growth?
Or would you rather use the NRAS to create tax free income and wealth through paying off your PPOR quicker,establishing equity quicker, while also buying yourself ten years to see another CG cycle. Oh, and when you sell- dont forget its CGT free.

There's no perfect answer,no right answer. But as Ive said before- cant see why anyone wouldn't want at least one NRAS property in their portfolio, if for no other reason than cash flow. They cost you nothing to own after the first year. If you had 2 or 3 of them, you could use the surplus money to pay down your PPOR is just a few years. Even if they don't make 1 cent in Cap Growth over ten years, you'll have used the tax free cash flow to save hundreds of thousands off your PPOR- tax free. Its a legal tax free double dip. Dont really see how people cant see how powerful it is??? Cant really see why there's so much fuss and trepidation...

 

[littletee]

Can I access to NRAS for my Development

Hi Guys,

Do you know if I can apply to NRAS for my 3 dwelling development in the West of Melbourne about 17kms from the City?

I'm planning on living in 1 and renting out the other 2 and this initiative sounds very very interesting if I can apply for it.

Any idea if this open to developments like mine and next steps to look into this?

TIA

 

[euro73]

Talk to one of the consortiums - they may be able to help you, but at a guess I would think your development is too small.

 

[RAR]

Sham or gold

Hey Guys,

Have any of you had issues with your builder?

Like this:
NRAS and* their approved builderVSContract and approved plans
black roof* * * * * * * * * * * * * * * *** * * * * * * *light coloured roof
Colourbond roof**** **** **** **** ********************tiled roof
Pine Frames * * * * * * * * * * * * * * * * * * * * * * Steel Frames
One elec meter box * * * * * * * * * * * * * * * * * Two elec distribution boxes
One water metre * * * * * * * * * * * * * * * * * * * two water meters
Fire wall CSR * * * * * * * * * * * * * * * * * * * * * * Fire Wall is "interhome" lafrange

Devaluing my property by about 50K

 

[The Fox]

I think Margaret Lomas wrote one of the best articles about this scheme. You can find it here: http://download.destiny.net.au/medi...t Property - Investing in NRAS properties.pdf

Be careful. Initially it was never meant for large institutional investors and was never designed for individuals to buy. Then greedy developers jumped on the bandwagon and started offering these via a ‘joint venture agreement’ which is slightly different than an outright sales contract.

The tax office realised about a year ago this was the case and had to put in interim arrangements to allow tax benefits, since these benefits were not really transferable. It seems they didn’t write the original rules well enough which is how this loophole appeared.

 

[euro73]

I think Margaret Lomas wrote one of the best articles about this scheme. You can find it here: http://download.destiny.net.au/medi...t Property - Investing in NRAS properties.pdf

Be careful. Initially it was never meant for large institutional investors and was never designed for individuals to buy. Then greedy developers jumped on the bandwagon and started offering these via a ‘joint venture agreement’ which is slightly different than an outright sales contract.

The tax office realised about a year ago this was the case and had to put in interim arrangements to allow tax benefits, since these benefits were not really transferable. It seems they didn’t write the original rules well enough which is how this loophole appeared.

Not "quite" correct. The article is accurate in so far as it's overview of what the scheme is and how developers qualify to have their properties approved to be NRAS eligible ( including the criterion set down by the state and fed Govt's in determining which properties they will allocate NRAS approvals to) If anything, the article reinforces the strict criterion developers must meet, and removes the myths and misinformation about NRAS property being poor quality. But some of the articles points are out of date and some of your concerns have long ago been addressed by the ATO.

Firstly, the figures used in the article are at least 3 years out of date as it quotes NRAS incentives totaling $8K, which was the figure in 2008. The figure for 2011/12 is $9524, (75% federal in the form of a refundable tax offset, and 25% state in the form of cash or similar- ie a cheque- both the fed and state components are tax free)

Your point about the properties being purchased via a Non Entity Joint Venture isn't quite right, either. It is certainly true that an investor who purchases an NRAS approved property and elects to enter it into the scheme, must enter into an agreement with the "owner" or "holder" of the NRAS allocation(ie - the consortium) assigned to that particular property in order to be eligible to receive the tax incentives associated with the scheme.

This is because (as you have correctly pointed out) the legislation was designed to deliver the incentive to an institutional investor, not an individual, the NRAS consortium (Ive written extensively on consortiums earlier in the blog ) is effectively the institutional investor, and therefore the recipient of the incentive, and the investor must therefore enter into an agreement with them to become a "partner" for want of a better description, to enter the property into the scheme and receive the incentives ( provided the property remains compliant, of course).

The method, or legal vehicle by which this is done is not limited to a Non Entity Joint Venture, however. There are actually three different legal vehicles used by consortiums to receive the incentives and pass them through to the individual investor. They are a Head Lease Agreement, a Managed Investment Scheme and a Non Entity Joint Venture. The NEJV model is far and away the most common, but its not the only model.

Each of the consortiums have applied for and received Private ATO rulings validating their models and their compliance with tax laws, giving investors confidence that they will receive the incentive tax free after it is passed through that particular consortiums legal vehicle. If in doubt, any investor can ask the consortium to show them their ATO ruling, so that they are assured they are entitled to receive the NRAS incentives.

Neither the Head Lease Agreement, Managed Investment Scheme agreement or NEJV agreement constitute any part of the contract of sale on an NRAS approved property. The Contracts are just regular old, run of the mill contracts, because all you are buying is a property. The NRAS "approval" assigned to that particular property is not part of the title deed, and entering it into the scheme is voluntary, so NRAS isnt even mentioned in the majority of contracts. All you are doing by buying an NRAS approved property is buying something that's eligible to be entered into the scheme. Because the scheme is voluntary, an investor is only required to sign one of the HLA, MIS or NEJV agreements if they then elect to enter the property into the scheme. So our statement that "developers jumped on the bandwagon and started offering these via a ‘joint venture agreement’ which is slightly different than an outright sales contract isnt quite accurate.

 

[SandraL]

It seems that the banks are getting more cautious with NRAS properties, too, according to this article.

http://www.smh.com.au/business/property/bank-blacklist-puts-floor-under-risk-20110911-1k455.html

 

[euro73]

It seems that the banks are getting more cautious with NRAS properties, too, according to this article.

http://www.smh.com.au/business/property/bank-blacklist-puts-floor-under-risk-20110911-1k455.html

The article appeared in all the Fairfax media and it's just flat out incorrect in regards to NRAS- and this quote especially, is a doozy and tells you all you need to know about the articles research and accuracy

"A list of ''unacceptable'' buildings obtained by BusinessDay, circulated by one of the big four banks to its mortgage brokers late in 2010, bars finance for all developments associated with the federal government's National Rental Affordability Scheme, an initiative designed to boost housing for low-income earners around the country"

They're talking about Westpac, and just a few weeks after that email was circulated, they rescinded it and circulated another email to brokers, saying they had approved six NRAS consortiums. This has been discussed on these threads extensively, previously Westpac even has a specific NRAS product !!! Its available right now.

"Most other banks have also refused to finance investors or buyers for NRAS properties, apart from St George, which accepts borrowers for one project in Queensland"

The fact they call NRAS consortiums "projects" is another hint they've done about 17 seconds of research into NRAS finance Each consortium owns NRAS allocations across multiple developments, for starters, and St George has approved six different consortiums (exactly the same as Westpac, because they are owned by Westpac) meaning there are literally dozens an dozens of different properties within different developments associated with those six consortiums, against which they WILL lend.

If you go back through this thread you'll see Ive detailed which banks lend against which consortiums, but will outline it again so everyone is across the facts, rather than the myths, around NRAS lending.

Westpac, ST George and RAMS - all owned by Westpac. They have approved 6 NRAS consortiums; Queensland Affordable Housing Consortium, Brisbane Housing Company, Yaran Residential Investments, Aspire Housing, Affordable Management Corporation and Questus. They go to 90% LVR for everyone except QAHC and BHC- which operate Head Lease Agreement models. For those two models, they go to 85% LVR. They use the discounted NRAS rental for servicing and do NOT accept the NRAS incentive for servicing. FYI -St G also assess any existing debts you may have , such as other INV loans or PPOR loans, at their benchmark rates , and at Principle and Interest. This can cripple your borrowing capacity! The other two assess existing debts as actual repayments, with no loading. So in a nutshell, Westpac or Rams offer far better borrowing capacity than STG if you need a high LVR loan.

NAB - used to be hit and miss, but they are getting more consistent. You can usually get them to do an NRAS deal for 4 consortiums - QAHC, Aspire, Questus and Ethan Affordable Housing. Maximum LVR is generally 75%. They use the discounted NRAS rental for servicing and they do NOT accept the NRAS incentive for servicing. They assess existing debts as actual repayments, like Westpac and Rams- no loading. So for deals where you need 75% LVR or less- they are worth considering alongside Westpac and Rams.

Firstmac. - 7 consortiums approved. QAHC, Questus, Aspire, UAHA, Ethan, AMC and Quantum Housing. They offer 80% LVR. They accept the discounted rental income for servicing but importantly, the also DO accept the NRAS incentive for servicing. They are the only lender to do so, and like Westpac, Rams and NAB, they also assess existing debts as actual repayments. So if you have plans to buy more than one of these over the coming years and have enough equity to keep deals below 80% LVR, they are the best bet from a borrowing capacity perspective, by a country mile.
They also do unconditional Off The Plan loan approvals which are valid for 18 months- taking all the risks associated with OTP purchases ( as outlined in the article, and all too common) completely off the table.

Adelaide Bank , Wide Bay, BOQ, Bankwest - they do bits and pieces- but at best its pot luck with them. Forget ANZ or CBA or anyone else, unless you have a deal done by exception.

So all things being equal, it comes down to this. If you want finance for NRAS, only 5 lenders are serious options, and have a wide range of NRAS consortiums approved. Westpac, ST G , Rams, NAB and Firstmac. Trying to obtain finance anywhere else is pure pot luck, at best.

It really comes down to probably two preferred options, depending on the LVR you need :
Option 1 The Westpac "family" is where you have to go for anything above 80% - you have 3 lender options and they have approved 6 consortiums, so you have quite a bit of choice. Remember though-of the three lenders in the family, St G is the least attractive from a borrowing capacity perspective. That leaves Westpac or Rams as probably the best of the bunch above 80%

Option 2 is applicable to any investor with enough equity to keep the NRAS deal at 80% or below - In addition to the Westpac family, Firstmac and NAB become alternative choices here. From a pure borrowing capacity perspective, firstmac is the obvious choice. They offer the best borrowing capacity by far and have the widest number of NRAS models approved. They also do the 18 month OTP lending- so for anyone considering an NRAS OTP purchase - they're basically the only sensible choice. For anyone considering multiple NRAS purchases they're probably also the most sensible choice. But if you dont need them for their OTP policy or their borrowing capacity, you still have 4 solid other options.

So - 3 finance options above 80%. 5 finance options below 80%.

I hope this helps with understanding the finance options available for NRAS

 

[srini]

I am considering an NRAS property to add to our portfolio.

Are you in any way affiliated to this euro? Maybe, you can PM me.

Cheers
Srini

 

[euro73]

I am considering an NRAS property to add to our portfolio.

Are you in any way affiliated to this euro? Maybe, you can PM me.

Cheers
Srini

Hi Srini

No, Im not involved with the selling or marketing or promotion of NRAS properties. A quick google search for "NRAS properties" will show you several property marketers who do sell NRAS approved properties, however.

 

[RAR]

NRAS - my experience

I have an investment property through the NRAS and my experience was this:

1 The builder did not build in accordance with the contracted plans.



2 The builder did not build in accordance with the approved plans (held by council).



3 The builder built in accordance with the not approved plans without my knowledge.



4 No variations.



The builder did not get any variations for the following:



Example 1: Black colourbond roof and not a light coloured tiled roof (as per my contract).



Example2: Separation wall is a CSR 502 not an "interhome" separation wall (as per my contract).



Example3: One electrical meter box not two (as per my contract plans).



Example4: Pine frames and trusses instead of steel (as per my approved plans held by council).



CERTIFICATION



The building certifiers did not certify my NRAS investment property in accordance with the contract plans.



The building certifiers did not certify my NRAS investment property in accordance with

the approved plans (held by council).



The building certifiers certified my NRAS investment property in accordance with the not approved plans.



All attempts by me to have these issues resolved have failed.

 

[abbyfresh]

Can you name the general location for this purchase? I'm sure we can work out which builder from here.

So where does this leave you with so many issues?

Out of pocket? Legal batters? Whats the deal or do you still need to work them out?

 

[Rolf Latham]

Vals

Vals

Vals


Vals


Did I say vals : )

The stock source is the most reliable predictor.

20 k below purchase is considered "normal" with in our office.

The worst so far was 70 k low on a 440 k purchase. The marketing company who shall remain nameless ( except for PMs or email requests : ) ) did a great sell job on my Medical Professional client who did not bat an eyelid and replied in a very cool manner..................


the NRAS and tax benefits will more than make up for the 70 k.


Nice.

ta
rolf

 

[RAR]

This builder was not interested in solving any of my issues... and told verbally.... you have a roof, a firewall and its just an invetment property so get over it.

I did not expect that a government program would allow for a devaluation in my NRAS by aprox 50K without my knowledge.

I did not get what I paid for.

It takes a lot of money, time and so far still no result.

From my experience, take a great deal of care when involved in the NRAS.

My view is .... not worth the drama.

Cheers

 

[euro73]

Sure.....

Not interested in solving any of my issues... and told verbally.... you have a roof, a firewall and its just an invetment property so get over it.

I did not expect that a government program would allow for a devaluation in my NRAS by aprox 50K without my knowledge.

I did not get what I paid for.

It takes a lot of money, time and so far still no result.

From my experience, take a great deal of care when involved in the NRAS.

My view is .... not worth the drama.

Cheers

Certainly sounds like you have recourse to sue the builders pants off if they haven't met the terms of the contract. Ultimately, you've been delivered a product that isn't what the building contract specified. Shouldn't be relevant whether the property is eligible for the NRAS or not; the builder hasn't met their contractual obligations, so the "breach" would be the same whether the property had been awarded an NRAS allocation or not.

If the property is part of an estate, there would be no more than 30% concentration of NRAS approved properties within the development, as that's the maximum allowed under the schemes parameters. What is the build quality of the house on the next lot? In the rest of the estate/development? Other NRAS approved properties within the estate? Have other buyers had the same experience with the builder? Has the builder done this to all the properties, or just the ones holding an NRAS allocation?

If you haven't already, you should ask the bank what the story is... they would have had valuers do progress checks before making payments for the various stages of the build, so I'd be asking to see the valuers reports, to see whether they picked up on the fact the property didn't marry up with the fixed price building contract. The bank will have approved the loan on the basis of the building contract, so I cant imagine they would be happy to be holding security that's not what they were told it was.

I assume you have already sought legal advice?

 

[RAR]

The builder has done a similar thing to the property behind mine.

The same fire separation wall etc.... some investors are making decissions to invest from other states and trust the builder to do the right thing....

The point is I did not get what I paid for and never will.

I should not have to go through the legal courts as the Government should have a process to check the quality that they are authorising builders and developers to build for the NRAS.

At no time was their any quality checks on my NRAS investment property by the NRAS that I am aware of.

As a small time Mum and Dad investor I was stupid to have belived the governments website and brochures.....

"built to the hightest standards..."

Is a bitter pill....

Add to this the fact that I have tried to negotiate to get a reasonable outcome.
I have spent 7k on lawyers fees and 8k in interest over 5mths.
Keep in mind the development was already 3mths delayed this makes for a first time investor a horendus set of circumstances.

I simply don't have the means to continue a leagal fight....

Regardless of the contractual obligations, the builder built what they wanted and not what I paid for and I have the plans to prove it.

However, it is a personal goal of mine, to continue for the next 10 years to explain to anyone who will listen.... the pitfalls to be found in the NRAS investment shceme as set up by this Government so that other small time investors like me are aware of the trap in my view.

I will continue to email the governemt representatives.

Have a presence on line.

Participate in any forum on the NRAS that I can find.

I dedicate an hour every day to this goal.

Cheers

 

[euro73]

It's truly terrible that you've had this experience, and it's got to be frustrating as hell, but why do people always insist on blaming Government's for things that go wrong? It's like some default position by which all things that go wrong are the Governments fault. Which arm of Govt do you believe dropped the ball and sold you a lemon? The Feds, who stump up 75% of the NRAS incentive, or the State, who stump up 25%?

I ask, because they didn't build the house! The Government is not responsible for the construction of the property. The builder didn't deliver what you paid for, so rather than trashing the scheme, why not name and shame the builder and focus your anger at their inappropriate behaviour???. Complain TO the Government by all means, but dont complain ABOUT them as being the cause of this situation.

This isn't anyone's fault except the builder who did the wrong thing. Could have happened whether the property had been awarded eligibility for the NRAS or not.

PS - the scheme was designed by the Liberal Government, not the current Government. Just thought it was important to make that clear so that all the facts are correct.