NRAS questions

Just trying to get a clearer picture on the NRAS.

Is it true that one could claim the full rebate no matter what the purchase price or rental income is?

NRAS approved properties should be priced the same as non NRAS properties?

Are there additional fees such as "consortium fees" that apply to NRAS but not to regular properties?

Are there NRAS "ghettos"? (I know that the idea is to build where there is the most demand for affordable housing but in my searches there are suburbs that look to be over represented and could suffer from lower prices as the scheme winds down and investors sell off.)

If there are such great cash flow benefits in NRAS why are they not taken up by all investors?

Should I be worried that I'm not seeing a lot of offerings on the market that are eligible for NRAS (besides aforementioned possible "ghettos").

All above asked under "no stupid question" rule!:eek:

Carolyn
 
Just trying to get a clearer picture on the NRAS.

Is it true that one could claim the full rebate no matter what the purchase price or rental income is?

NRAS approved properties should be priced the same as non NRAS properties?

Are there additional fees such as "consortium fees" that apply to NRAS but not to regular properties?

Are there NRAS "ghettos"? (I know that the idea is to build where there is the most demand for affordable housing but in my searches there are suburbs that look to be over represented and could suffer from lower prices as the scheme winds down and investors sell off.)

If there are such great cash flow benefits in NRAS why are they not taken up by all investors?

Should I be worried that I'm not seeing a lot of offerings on the market that are eligible for NRAS (besides aforementioned possible "ghettos").

All above asked under "no stupid question" rule!:eek:

Carolyn

Is it true that one could claim the full rebate no matter what the purchase price or rental income is?

Yes- this is true, as long as the property is entered into the scheme via an agreement (NEJV, MIS or HLA) with an approved participant (consortium) and as long as the property is rented at the appropriate 20% minimum discount from market rent, and rented to a tenant who qualifies under the relevant income thresholds prescribed by FAHCSIA.

NRAS approved properties should be priced the same as non NRAS properties?

Yes- for identical properties located in the same development or estate or complex, with identical floor plans, aspects, views and fit outs, a properties price should not be affected simply because it has been nominated/ approved as eligible for the NRAS. (if the buyer elects to participate in the NRAS) Of course small pricing variations will always occur between stock that appears "identical" because of things such as aspect, view etc- but the differences should be small. This is normal for any development or estate. But there is no justifiable reason why a property approved for the NRAS should be sold at a distinctly increased price than an identical/nearly identical property which has not been approved for the NRAS, if there isnt something unique about the properties internal size or land area or aspect etc. The only reason for price variations should be attributable to characteristics of the individual properties being compared- nothing else.

Are there additional fees such as "consortium fees" that apply to NRAS but not to regular properties?

YES. Each approved participant (consortium) charges different fees. Some are as low as 5% plus gst, of the NRAS incentive ($9981 this year) and some are as high as 10 or 12% plus GST. These fees are determined by the consortiums, and neither state nor federal governments have any say. The consortium is offering you, the investor, the opportunity to participate in a scheme designed for institutional investors only, by providing you with access to the scheme via a partnership, using their legal vehicle ( NEJV, MIS or HLA) How they arrive at a suitable fee for doing the compliance reporting to state and federal Governments to ensure the refundable tax offset ( which represents 75% of the NRAS incentive) and the non assessable cash incentive ( which represents the other 25% ) is their decision. Ultimately though, the differences between each consortiums fees amount to just a few hundred dollars a year from what is usually a 6-8K cash flow positive property

Are there NRAS "ghettos"? (I know that the idea is to build where there is the most demand for affordable housing but in my searches there are suburbs that look to be over represented and could suffer from lower prices as the scheme winds down and investors sell off.)

NO. No more than 30% of any estate or development can be NRAS approved. In reality, most developments hold less than 15% NRAS approved property. Many hold less than 10%. There are exceptions for developments of 50 units or less, where 100% can be NRAS approved, but I have only ever seen ONE such development, in labrador, Qld. There may be a small number of others I havent come across, but the point is- NRAS is spread far and wide and it's rare to come across concentration levels above 15-20%. Even with higher levels of concentration, ghetto concerns are ill founded. There are income thresholds for tenants to qualify through, and these are NOT housing commission.

If there are such great cash flow benefits in NRAS why are they not taken up by all investors?
Honestly, or theoretically? lol My view? Firstly- Investors arent speculating as much as they were in the past 2 decades, because fewer and fewer have access to the necessary equity and funding. This is because prices have plateau'd. Secondly, these forums prove that many investors simply dont understand the the power of the cashflow associated with NRAS. Third, those investors that are active still, tend to continue to focus on the strategies that have served them well for 2 decades, but which they havent yet realised have run their course. By that I mean- capital growth expectations persist, and unfortunately there is just no convincing people for whom that strategy was successful in the past, that it's over for the medium term.
I've said time and again- supply v demand does NOT drive prices up.
Depreciation, deductible losses (ie-neg gearing) tax laws do NOT drive prices up. Both these factors affect prices by helping create an atmosphere for growth, but only one factor allows investors to turn that atmosphere of potential into an actual reality - and thats the availabilty of CREDIT.

Basically, anyone who bought a half decent property anywhere in a metro area in the last 20 years made a 300-400% return in the last decade and a half.
Its as simple as this; If I had 50K in the late 80's, when the maximum LVR I could get was 80%, I could get a loan for 200K from my bank. I provided 20% (50K) and they provided 80% (200K)
When deregulation occurred in the mid 80's, and when securitised lenders entered the market started offering mortgage insured in the late 80's (remember those Aussie- we'll save you, ads? ) the whole ball game changed. Firstly, Negative gearing was reintroduced in 1987, and the "atmosphere" for investors started changing. Then loans started getting cheaper because of the competition the securitised ( non bank) lenders introduced. Simultaneously by the late 80's early 90's the supply of money grew, as 16 new international banks started trading in Australia. ( following deregulation) and then in the early 90's came the big changes to credit policy that made the "atmosphere " take off and grow wings....

The foreign banks and the non banks came looking for mortgage business, and policies started opening up to borrowers with 10% deposits (ie 90% LVR) , as mortgage insurance became a growth industry. For a few years it was only borrowers with 10% genuine savings, but it still meant that buyers unable to participate previously, now could- and at lower rates than ever before! But more importantly, the 50K deposit they had, now allowed them to borrow 450K, and spend up to 500K ! Previously, just a few years earlier, that 50K only allowed a 250K budget. Suddenly with 90% LVR loans becoming available, the same person could access a 500K budget.

Then 95% loans started appearing. Still requiring genuine savings, but again, allowing people to participate who could never have participated before. And suddenly, that 50K deposit equaled a $1million budget.

All of this happened as money got cheaper, and negative gearing rules had been reintroduced. Supply became strained. All kinds of buyers who would have been waiting years to get in, could now get in. But investors could also start to re-leverage, as prices started to surge. They found themsleves with historically unparalleled equity growth. Up, Up, Up went the values of their homes.

Then came 100% loans. Then came 95% without genuine savings. Lo Doc. No doc.... cheaper money. More money. Anyone can get money... just sign here! Basically, the number of buyers able to participate just grew and grew, because of CREDIT policy changes. Equity surged, older generations enjoyed a FREE ride to wealth by just re-gearing and investing anywhere at all. ( yes, I concede that some areas did better than others and there was some "science" to some investors strategies- but lets get real- anyone with a heartbeat who wasnt an idiot made a fortune for free, without any skill whatsoever, for 2 decades. So the supply v demand arguments, and the neg gearing arguments are symptoms, not causes.

My point? Its over. There is nowhere for CREDIT policy to expand. The GFC has ensured that.. Lo doc is basically dead. No doc IS dead. No deposit loans are dead. So where is the money going to come from, and where are all the extra participants going to come from- to push prices up like they were pushed up in the golden 90's and noughties? When the bank CEO's, the RBA CEO all say that growth is over- believe them.

Slo back to NRAS - it's a free lunch. Take 7-8K of tax free surplus income per year ( plus the 2-3K of after tax holding costs you'd be pumping into a standard, non nras investment property using the "antiquated" neg gearing/cap growth strategy) and see what you can achieve by redeploying that 10K or so , onto your non deductible mortgage.
For 10 years you will have NO holding costs. For 10 years you can focus on de-leveraging your non deductible debt position. You'll knock 12-15 years off a 300-500K mortgage if you pay 10K extra a year onto it, at a minimum. That's hundreds of thousands in saved interest- and its extra tax free profit if you ever sell the PPOR. If you dont intend selling, its free Equity, and you are in a fantastic position to re-leverage for INV purposes way before your neighbour is- so that you are good to go when the next surge happens- and eventually it will ( after people de- leverage, to create the equity and borrowing capacity required for a surge in investment- ie growth)
I put it to anyone that this outcome, which is absolutely mathematically guaranteed and virtually risk free - will beat a cap growth strategy over the next decade, while CREDIT policies remain under the constraint of the GFC hangover.

Should I be worried that I'm not seeing a lot of offerings on the market that are eligible for NRAS (besides aforementioned possible "ghettos").

Loads of NRAS properties available.... depends where you are looking :)
 
JIs it true that one could claim the full rebate no matter what the purchase price or rental income is?

Yes absolutely.

NRAS approved properties should be priced the same as non NRAS properties?

They are. Ask the developer for a price list and you’ll find no price difference between NRAS and non-NRAS except where there are different features/size etc...

Once I even asked for NRAS to be applied to a particular property rather than another one in the same development that the developer had earmarked for NRAS, for no price change.


Are there additional fees such as "consortium fees" that apply to NRAS but not to regular properties?

Yes, I’m paying around 10% of the NRAS grant. Before buying you should ask all fees to be detailed including PM fees that could be higher than normal and include them in your analysis. I'm almost sure you'll come out ahead.

Are there NRAS "ghettos"? (I know that the idea is to build where there is the most demand for affordable housing but in my searches there are suburbs that look to be over represented and could suffer from lower prices as the scheme winds down and investors sell off.)

No ghettos, NRAS properties are only allowed to represent a small proportion of total dwellings, however because they are mostly in larger developments it is there that you will find them.

There are some smaller developments (eg a few townhouses or houses) that are 100% NRAS, however these are nestled in established areas and aren't ghettos by a long shot. I've bought in both types and found better potential with the smaller one.

Why do you think investors would sell after 10 years? By that time your property would have become CF+ and bringing in money without government help. Time to enjoy the fruit of your "labour".

I get the impression that you're thinking NRAS tenants are all low income, therefore all this talk about "ghettos". This is not my experience. All my NRAS tenants are middle class and in secure jobs. By the way you choose the tenants that you want, not some government housing agency.


If there are such great cash flow benefits in NRAS why are they not taken up by all investors?

I don’t know why to be honest, as there is no catch. I’m earning tax free the equivalent of a full time job with all my NRAS grants. Not to be sneezed at.

A possible reason could be low valuation in some areas, but this is not limited to NRAS properties.

Or maybe people don't like complex arrangements and are suspicious of consortiums? They sound like big conglomerates preying on the defenceless but they're not. Do your due diligence like in any other deal and you will be OK.


Should I be worried that I'm not seeing a lot of offerings on the market that are eligible for NRAS (besides aforementioned possible "ghettos").

If you view new developments as ghettos then you won’t find any.

All the best.
 
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I think a lot of people don't invest in NRAS properties because it is a government scheme. What is stopping them pulling the pin. I put it in the same category as superannuation. Great tax benefits but do I want to have an investment that the government can control and change the rule's on at anytime.
 
I think a lot of people don't invest in NRAS properties because it is a government scheme. What is stopping them pulling the pin. I put it in the same category as superannuation. Great tax benefits but do I want to have an investment that the government can control and change the rule's on at anytime.

So is negative gearing, the age pension and tax. If they pull the pin it just reverts to full market rental. No different to any other property.

But seriously, this scheme costs the Govt 4/5th's of bugger all. It is a rolling commitment over 10 years, and same goes for the states.

Compare what it costs the feds and states to fund @ 100-120K of benefits over 10 years for 50,000 dwellings, vs building 50,000 dwellings themselves for an average of 400K per property, to offer to the market at a discount.

Then compare the wealth it creates, and theoretically the pressure it takes off the age pension for those investors who use it to pay down debt and become self funded retirees.

Compare the construction jobs it creates. Accounting work. Property Management work.

The Feds tried to reduce the 50,000 allocations to 35,000 after the qld floods. Both the Greens and Libs blocked it.

At the last budget, NRAS went untouched. The Govt cut everywhere and didnt touch NRAS. They KNOW that it has full bipartisan support. If you arent already aware, it was a LIBERAL initiative but was introduced by LABOR after Howard lost in 07. It's not going anywhere.

People just arent looking at this right. It's money for jam for the investor, and it's cheap as chips for the state and fed Govts. And politically it's got everyone's support.

Ive said over and over again- the excuse makers will never be converted. That's OK. Its a democracy with room for all views. :) But people who understand that growth's golden era is over , DO get NRAS, and while they spend the next ten years enjoying a free ride towards debt reduction and deleveraging and setting themselves up to be unencumbered of non deductible debt without any holding costs out of pocket and ready for what will inevitably be another boom at some point, others will continue to pursue a strategy of paying their properties a 3-5K dividend per year in losses and hoping they get it back in an era where growth cannot be guaranteed- because the CREDIT world has changed forever! ( or at least for a generation)
 
WOW thanks for all the great info. So far the only one I have found is shortage of properties to choose from in Perth. I know I need to get over that desire to invest locally, eventually.
 
WOW thanks for all the great info. So far the only one I have found is shortage of properties to choose from in Perth. I know I need to get over that desire to invest locally, eventually.

I saw one yesterday for sale in Aveley which is about the first location that spiked my interest. I've just purchased a non nras property elsewhere but maybe it may interest you.
 
WOW thanks for all the great info. So far the only one I have found is shortage of properties to choose from in Perth. I know I need to get over that desire to invest locally, eventually.

You'll have a much greater selection in WA in about 2 years. For now- the place to be is VIC or QLD, and QLD valuations are still very inconsistent.

Equity and borrowing capacity permitting, there's no reason why you cant participate in the scheme right now via a property purchased in VIC, enjoy zero stamp duty and start generating surplus cash flow by the end of this financial year, and then participate in a second one in a couple of years in WA, and start generating a second surplus cash flow by 2015. You would be looking at 15-20K tax free cash flow positive per year by 2015/16, and rapid deleveraging of your PPOR mortgage. There are several thousand WA NRAS properties coming, but not until 2014 ( round 4 of NRAS)
 
You'll have a much greater selection in WA in about 2 years. For now- the place to be is VIC or QLD, and QLD valuations are still very inconsistent.

Equity and borrowing capacity permitting, there's no reason why you cant participate in the scheme right now via a property purchased in VIC, enjoy zero stamp duty and start generating surplus cash flow by the end of this financial year, and then participate in a second one in a couple of years in WA, and start generating a second surplus cash flow by 2015. You would be looking at 15-20K tax free cash flow positive per year by 2015/16, and rapid deleveraging of your PPOR mortgage. There are several thousand WA NRAS properties coming, but not until 2014 ( round 4 of NRAS)

You're right about lack of choice over here in WA. Last night I went to see an open for viewing for prospective tenants at one of the NRAS 3x2 villas in Armadale. There was a lot of people filling out applications and the agent tells me they have zero vacancies and a waiting list for NRAS properties to rent (although I will probably rent to my sister which is one reason I am looking in perth south). She said they have a lot coming up later in the year with completion due in 2013. Location was great but I wasn't keen on the development itself.

How is it zero stamp duty? Is that a VIC thing? Sorry I haven't researched interstate much.

Thanks again
Carolyn
 
You're right about lack of choice over here in WA. Last night I went to see an open for viewing for prospective tenants at one of the NRAS 3x2 villas in Armadale. There was a lot of people filling out applications and the agent tells me they have zero vacancies and a waiting list for NRAS properties to rent (although I will probably rent to my sister which is one reason I am looking in perth south). She said they have a lot coming up later in the year with completion due in 2013. Location was great but I wasn't keen on the development itself.

How is it zero stamp duty? Is that a VIC thing? Sorry I haven't researched interstate much.

Thanks again
Carolyn

Stamp Duty on land only. I should have been clearer- sorry. Usually 2-3K tops. Some examples that may be of interest are below FYI. Also, keep in mind that the exemptions are for OTP deals- and some OTP will be 2 years away from delivery. Others will be very near completion. Obviously the ones you want, so that you can take advantage of the s/duty savings AND the cash flow more quickly, rather than waiting 2 years, are the very near completed ones.

Now please understand I'm not recommending these properties in any way. I'm just showing you some examples of stamp duty savings in VIC. Keep checking this particular site- there were several due for completion within a month- listed on Friday. They appear to not be there today.... but stock pops on and off these NRAS sites so you have to keep diligent. Anyway here are some s/duty "free"(ish) examples- but not for immediate completion unfortunately.

http://property.ethanproperty.com.au/realestate/Swamp-Gum-Place-2335

http://property.ethanproperty.com.au/realestate/East-Bendigo-Homes-1612
 
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Stamp Duty on land only. I should have been clearer- sorry. Usually 2-3K tops. Some examples that may be of interest are below FYI. Also, keep in mind that the exemptions are for OTP deals- and some OTP will be 2 years away from delivery. Others will be very near completion. Obviously the ones you want, so that you can take advantage of the s/duty savings AND the cash flow more quickly, rather than waiting 2 years, are the very near completed ones.

Now please understand I'm not recommending these properties in any way. I'm just showing you some examples of stamp duty savings in VIC. Keep checking this particular site- there were several due for completion within a month- listed on Friday. They appear to not be there today.... but stock pops on and off these NRAS sites so you have to keep diligent. Anyway here are some s/duty "free"(ish) examples- but not for immediate completion unfortunately.

http://property.ethanproperty.com.au/realestate/Swamp-Gum-Place-2335

http://property.ethanproperty.com.au/realestate/East-Bendigo-Homes-1612

I am sorry if I seem dense. If one buys off the plan stamp duty is paid on land but what about the building after?

Also I've noticed that market rent in the WA properties I've looked are very low. EG Baldivis a 3x2 estimated market rent $300 is way too low for a brand new property.

Thanks for all your help.
Carolyn
 
What are people's thoughts on something like this? (Curious only, I don't have the means to invest for a few years).

http://www.domain.com.au/Property/For-Sale/Apartment-Unit-Flat/NSW/Marrickville/?adid=2009305915

The price does seem a TAD inflated, but assuming it's no worse than neutrally geared initially it sounds like a solid first investment given Marrickville's consistent, above average CG for the past decade. When the 10 years of NRAS payments were up, it ought to be well and truly paying for itself and then some, not to mention the equity..

Things look good for the suburb too, the council has just abolished fees for cafés to have seating on streets to encourage a better sense of community and activity, an epic new library is due in 2015, the Marrickville Metro is to be redeveloped to almost double its current size, new cafés, restaurants and shops are popping up at a rapid rate.

What am I missing?
 
I am sorry if I seem dense. If one buys off the plan stamp duty is paid on land but what about the building after?

Also I've noticed that market rent in the WA properties I've looked are very low. EG Baldivis a 3x2 estimated market rent $300 is way too low for a brand new property.

Thanks for all your help.
Carolyn

Different States run different stamp duty regimes- sometimes there are stamp duty exemptions for brand new OTP or construction deals- that's the case in VIC at the moment. You only pay Stamps on the land.

WA isnt the place to be for NRAS at the moment as Ive said. :) It's 18 months away from having a good variety of the Round 4 stock, at least.

If you get into VIC now and take advantage of the excellent yields and low duties, you can look at WA in 2 years.
 
What are people's thoughts on something like this? (Curious only, I don't have the means to invest for a few years).

http://www.domain.com.au/Property/For-Sale/Apartment-Unit-Flat/NSW/Marrickville/?adid=2009305915

The price does seem a TAD inflated, but assuming it's no worse than neutrally geared initially it sounds like a solid first investment given Marrickville's consistent, above average CG for the past decade. When the 10 years of NRAS payments were up, it ought to be well and truly paying for itself and then some, not to mention the equity..

Things look good for the suburb too, the council has just abolished fees for cafés to have seating on streets to encourage a better sense of community and activity, an epic new library is due in 2015, the Marrickville Metro is to be redeveloped to almost double its current size, new cafés, restaurants and shops are popping up at a rapid rate.

What am I missing?

These properties have no longer got NRAS allocations. You arent missing anything. Marrickville is a great location. The developer basically sold all of these without needing to use the NRAS incentives. :)
 
These properties have no longer got NRAS allocations. You arent missing anything. Marrickville is a great location. The developer basically sold all of these without needing to use the NRAS incentives. :)

Thanks. Makes sense. I am pretty sure "Quarry" apartments 800m down the road have sold swiftly too. Looked like a steal with NRAS approval.
 
NRAS doesnt work well on properties at those price points, anyway. The yields aren't very good, so the cash flow isn't going to be as powerful in reducing non deductible debt.

There's also the issue around tenants. What is the expected rent on an Inner West Sydney brand new 2 bedder priced in the high 500's? $550-600 per week? Even discounted by 20% under NRAS, rents end up $440-480

Remember that income thresholds apply for eligible NRAS tenants. For two single adults the household combined taxable income limit is $62,899. For sole parents with 1 child- $62,493. For a couple with 1 child $77,989 . Makes it tough. $440-480 per week would eat up a pretty big percentage of any of those people's NET income.

NRAS works far better at 400K and below. Rents work better. Yields work better and therefore debt reduction works better.
 
NRAS Fees

Hi Guys,

Regarding NRAS fees....

I am currently looking at an NRAS property in QLD and have been given the figures below.

Property Management 11%

NRAS Incentive Admin fee $14 / week

If not what would be the " Norm " ?

Are these standard for NRAS properties ?

Cheers

triv
 
Hi triv,

I am currently looking into NRAS property purchase too. The consortium I was looking at a property with had 10% plus GST plus 1 week reduced rent for PM, and 7.5% plus GST for consortium incentive fee.

Hope this helps :)
 
Hi Guys,

Regarding NRAS fees....

I am currently looking at an NRAS property in QLD and have been given the figures below.

Property Management 11%

NRAS Incentive Admin fee $14 / week

If not what would be the " Norm " ?

Are these standard for NRAS properties ?

Cheers

triv

Every consortium has different fees. Some have entry and exit fees, some have none. There are 139 consortiums. I can take you through every one , or you can come to the conclusion that you should just assess the property and cash flow on its merits and not compare consortiums.... after all, if the property you like is under QAHC, or Questus, or AMC, or Ethan, or UAHA... their fee structure is what you get with that particular property. Unfortunately you dont get to choose a property and THEN decide which consortium you work with. The property's NRAS entitlement is already in place and owned by one of the 139 consortiums, BEFORE you buy it...
 
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