NRAS - is it worth it?

Discussion in 'Innovative Techniques' started by blahblah1961, 2nd Sep, 2011.

  1. euro73

    euro73 Member

    Joined:
    13th Oct, 2009
    Messages:
    795
    Location:
    Sydney, NSW


    These forums (like most forums) tend to attract the negative, rather than the positive. That's just the nature of blogs. However, if you read through all the NRAS blogs, there are several positive stories.

    That being said, there are two issues being complained about in the forum;
    1. valuations
    2. build quality

    Valuations - so far, of the 4600 NRAS properties actually delivered, most have been in SE Qld, most have been construction, and most are getting hit pretty hard by valuers. So it seems to some forum members to be a problem related to the NRAS itself, but that isn't a very fair assessment. The issue of valuations is affecting ALL property in SEQld at the moment, whether it is eligible for NRAS or not, and this has been the case for the last 8 or 9 months at least. There are two reasons for it; marketing fees and oversupply. Regarding fees, property marketers are typically paid 30-40K to sell a property. That represents an 8-10% commission on a typical 400K property. Valuers know this. Regarding oversupply - SE Qld is oversupplied. The Gold Coast corridor and inland towards Ipswich has nearly 18 months excess supply according to agents there. In particular, some parts of the GC have fallen 40% in the last 6-12 months. If you take both these factors into account you can see why there are valuation problems.

    In a nutshell, because marketers are focused almost singularly on selling SE Qld NRAS stock, an area that is already oversupplied, because that's where the big commissions are, you're hearing bad valuation news a lot. Valuers arent silly. They know how the property marketing industry works, and they will value with a view to protecting their backsides. This hasnt been a big issue in the past because the area wasn't oversupplied. Valuations would often come in 10-15K under contract price in the past, to cater for the marketers fees. but not 30, 40, 50K under like they are now.

    The other issue raised here is build quality. All new construction carries risk. To be fair, anyone can get dudded by any project builder or developer anywhere in the country - but it really has nothing to do with the property being eligible for the NRAS or not. It's not a new phenomenon that popped up when NRAS came into the market. It's up to buyers to check whats being built. I'm not sure we can reasonably expect the Govt to put building inspectors on the ground to check all progress on all NRAS construction, nationwide. Other than that, the broader responsibility for checking that the progress on builds matches the specs in a fixed price building contract, is meant to lie with valuers. Most lenders require a valuer to sign off on a progress check before paying the slab, frame, roof, lockup, completion stages on a construction loan. Whether the valuers even bother to go and check the work is something you'd have to ask the valuers or the lenders...

    So like all things, perspective and balance is important. Only a handful of complaints exist on this forum. Some of the commentary assumes there are dozens and dozens of complaints posted here, but there are not. And there are several good news posts.

    The best advice is to understand why bad valuations happen, and to probably take a look at the North Queensland stock or interstate in Vic, SA, NSW , WA etc- where you'll find far fewer issues around valuations. If your marketer doesnt offer properties there- go to one that does. There are marketers willing to accept smaller commissions in other states, who have good stock available. It's your money after all, and your investment.

    If you can buy NRAS that is built as it is meant to be, and values well - that should result in a very happy experience. I dont think its fair to attack the scheme because of builders behaving badly or marketers pushing buyers into areas of oversupply because they are chasing maximum commission.
     
  2. euro73

    euro73 Member

    Joined:
    13th Oct, 2009
    Messages:
    795
    Location:
    Sydney, NSW
    Some interesting information about Brisbane.

    An average of 2.5% decline in valuations across the board in the last quarter. Coupled with a further 15-20K being stripped out of the valuation on new investment properties being sold through marketers, these official figures from the ABS confirm what has been discussed here, about SEQld property being valued low over recent months. ie- low valuation issues are not peculiar to just NRAS properties. The whole market there is being valued downwards at the moment.

    Expect valuers to continue to be very conservative with valuations in a market where the data shows falling prices.

    As I've said previously, look at N Qld or other states for NRAS properties for the time being, until the Brisbane corridor starts to improve (could be 18-24 months at least, given oversupply issues there) Valuations in those areas are faring much better. If you are set on SEQld however, expect that valuation shortfalls of 30-40K will be a given on most 400Kish properties there.

    http://www.spionline.com.au/2011/11/brisbane-house-prices-plummet-says-abs/
     
  3. miatait

    miatait Member

    Joined:
    9th Nov, 2011
    Messages:
    1
    Location:
    Eumundi
    Good to hear
    I am looking at investing 170k down and borrow 200k on a property in Caboulture should pay for itself I also hear the property manager is key. Mine will be Horizan Housing. Love to hear negative or positive feedback. Or other places to buy house only in the 360k range nras.
     
  4. Kristine..

    Kristine.. Broker and Raconteur

    Joined:
    1st Mar, 2001
    Messages:
    3,047
    Location:
    Melbourne, Victoria
    Due Diligence: Be Well Informed Before You Buy, There Are Multiple Management Models

    G’Day

    Mike and I attended a www.nrasscheme.com.au workshop in Melbourne this week.

    We are very interested in this scheme as we have a number of (family) properties leased to Office of Housing in Victoria and these arrangements have gone well over a number of years

    However, NRAS is not Social Housing and all of the properties are new. Some are ‘Off The Plan’ but others are finished before being offered for sale.

    There seems to be real differences in how the Consortiums manage the project, and whether the investors then get 75% or 80% of ‘market rent’.

    There is lots of information on the http://www.ato.gov.au/content/00179876.htm and the http://www.environment.gov.au/housing/nras/index.html as well as eg information for tenants on http://www.communities.qld.gov.au/h...affordability-scheme-properties-in-queensland

    I applaud this initiative and am now in earnest discussion with Daughter and No: 2 Son and would hope that they do follow through with this and maybe buy a townhouse each. They already have properties currently leased to Office of Housing and are no strangers to the ‘set and forget’ type of property investment.

    I have always considered property to be an ‘Ethical Investment’ as it benefits everybody.

    This NRAS scheme would seem to be a Win-Win for all concerned. Discounted rent for working tenants, with a tax free bonus of not less than $95,240 paid directly to the landlord over the ten years, and who also gets a brand new investment property with all the usual depreciation and tax benefits, plus the likelihood of a vacancy-proofed investment under the watchful eyes of a double layer of professional management companies!

    And, as the presenters explained, depending on the structure of the entity and the management policy of the consortium managing your project, you may have the opportunity of withdrawing from the scheme at any time and dealing with the property in the usual way eg move in yourself, rent on the open market, or sell without restriction.

    The operative condition here is the lease and while, in theory, any of the selling agents could market any of the projects, different selling / estate agencies tend to deal with different consortiums. Some prefer to deal with the ‘Not For Profit’ or Charity consortiums, whereas other agencies prefer to deal with the commercial consortiums

    I guess if you were a superannuation fund or an institutional investor you would perhaps want a ten year Head Lease which runs with the title, but an individual investor may prefer a Non Entity Joint Venture (NEJV) Structure so that they have some latent control over the investment.

    I was speaking with my ANZ Relationship Manager last week, and he was very surprised that we have had the Bank for 14 years now – according to him, this is most unusual and that in his experience investors tend to have properties for up to about 7 years and rarely longer than that.

    So if you are interested in the NRAS scheme, as a Mum & Dad Investor make sure you understand the opportunity and threat with the different styles of consortium and different types of lease available. Ten years goes past in the blink of an eye, but life is what happens to us when we’ve made other plans

    Attend at least two workshops and ask many questions. This may be the greatest thing since sliced bread, but just make sure that you don’t have a hidden wheat allergy!

    Cheers
    Kristine
     
    Last edited: 11th Nov, 2011
  5. truong

    truong Member

    Joined:
    17th Feb, 2010
    Messages:
    356
    Location:
    SA
    Kudos Christine for pointing that out about NRAS.

    One can be a (profit making) landlord and really feeling good about it.
     
  6. Nancia

    Nancia Member

    Joined:
    21st Aug, 2011
    Messages:
    5
    Location:
    Sydney
    Builders inspection?

    I sympathise with your experience. Although many say not to do it, from your experience I've learnt that even newly built properties require a building inspection, which should pick up any of these issues. $400 well spent.

     
  7. euro73

    euro73 Member

    Joined:
    13th Oct, 2009
    Messages:
    795
    Location:
    Sydney, NSW
    There is one NRAS lender - firstmac- who have valuation inspections done at each stage of the build, so that this sort of thing doesnt happen. They require a signed valuation report verifying that the work has been completed to the standards outlined within the building contract, and if the valuer finds that any of the work hasn't been completed to the standard of the building contract, they withhold payment to the builder until the work is completed.
    Most other lenders dont do progress inspections, so this process adds 5 x extra valuation fees of $110 to your overall loan costs, so some people see it as a negative, unnecessary additional expense when compared to other lenders costs, but I think you can see it's probably money well spent on construction loans, to be sure you get what you pay for.
     
  8. Rolf Latham

    Rolf Latham Member

    Joined:
    2nd Mar, 2001
    Messages:
    18,791
    Location:
    Confused = Sydney, Brisbane and Gold Coast
    such costs are usually considered as a waste by many borrowers..........until the tears

    ta

    rolf
     
  9. euro73

    euro73 Member

    Joined:
    13th Oct, 2009
    Messages:
    795
    Location:
    Sydney, NSW
    Thats all too true isnt it Rolf? A few hundred bucks to take tears off the table seems like a sensible spend :)