Let me try that again. I'll try and provide some broader perspective below, because NRAS seems to be widely misunderstood;
First and foremost, its important to understand NRAS from the beginning. Particularly, how NRAS incentive allocations occur. - NRAS allocations are applied for through a tender process, by Approved Participants- otherwise known as consortiums. These are groups which have been appointed by FAHCSIA, to make applications on behalf of developers, for NRAS allocations. Developers pay these AP's a fee to secure them an allocation of NRAS incentives in a development. The AP's submit applications to FAHCSIA and the relevant state Housing authority (because the NRAS incentive is made up of a state and federal component, so both must agree to the security being allocated an NRAS incentive) via a tender process. The process is rigorous, and NRAS incentives are allocated to properties where both the state and fed departments believe there is a need for affordable housing. FYI- Approved Participants include groups such as QAHC, Questus, Aspire, National Housing Group, Ethan Affordable Housing, UAHA, Yarran Group, AMC and others... a full list is available on the FAHCSIA NRAS website.
NRAS rule 1. Knowing who the Approved Participants are,and how their various models work, is CRITICAL in understanding NRAS. In fact, its as important as the property itself, because it is the key to obtaining finance. I'll explain more on this later...
What happens next? FAHCSIA announces the successful applicants, and awards NRAS allocations to the relevant Approved Participant. Its important to understand at this point- the NRAS allocation is NOT awarded to the developer or an individual property, directly. It is awarded to the Approved Participant, on behalf of the developer.
Once the NRAS allocations are awarded to the relevant AP, they notify developers, and the developers then have to decide how to sell the stock. They have a choice on how to market and sell the NRAS approved properties within their development. Some will use in house sales and marketing teams, some will use property/wealth creation groups (who use seminars, internet etc, to sell) and pay them a fee for doing so. Others may use real estate agents, and pay them a fee/commission for doing so. Or the developer may use a combination of all three, in an effort to sell as much stock as possible, as quickly as possible. (This is why you are seeing alot of property groups popping up when you do a google search for NRAS) I must stress, in almost all these instances, the person selling the NRAS property is NOT the Approved Participant. They are simply a property company selling property for a fee. They dont even mention who "owns" the NRAS allocation, on their websites. Check for yourself...see how many of the property spruikers mention details on the NRAS model associated with the property they are selling you? As I said earlier- the NRAS model is key to obtaining finance, so be mindful of that. I'll detail why, shortly...
So, NRAS Rule 2. Always ask any NRAS property seller, whose model the property belongs to.
So now to the Approved Participants, and understanding their models
The AP has just secured X amount of NRAS incentives for a developer. The developer begins selling stock ( through one or all of the distribution methods mentioned above), marketing it as NRAS approved stock... whats next? Does the AP have any further role? Yes. Their first role was to secure the NRAS incentive for the developer, through one of the tendering rounds offered by FAHCSIA. Once that's done, their role changes considerably.
Because NRAS allocations/incentives have eligibility criteria attached to them - ie mandatory 20-25% rental discounts, tenant income thresholds, etc- someone must be responsible for the administration of the scheme, to ensure compliance, and therefore ensure the investor ( you, or me) is eligible to receive the NRAS incentive annually. That "someone " is the AP. Put plainly, most developers dont have the skillset or an interest in being compliance/ property managers for 10 years, after their stock has been sold... so that responsibility goes back to the AP's. This becomes their second role.
This is where people on these forums start to get confused, because each of the approved participants approaches this role differently. The only thing to know is that each AP has a different contract/model, which the NRAS investor is required to enter into (in order to enter the property into the NRAS scheme) and each has a different set of fees and charges.
NRAS Rule 3 - Compare the costs of each model, if you are considering several NRAS properties
There are three basic models;
Head Lease Agreement -Properties are rented at 25% below market rental. This is the model used by Brisbane Housing and QAHC.
Managed Investment Scheme, Properties are rented at 20% below market rental.This is the model used by Questus.
All other AP's use a Non Entity Joint Venture. Properties are rented at 20% below market rental
Each of these models has different entry and exit fees, and ongoing fees. Its important to do your research and to compare these costs. As a general rule, the Head Lease models are far more expensive than the others, in both upfront and annual fees, but that doesn't mean you shouldn't consider an NRAS property sold under one of those models. It may be in the location you want. The less expensive models may not have stock in the location you want to invest.... so its just the price of doing business.
So, to finance - Because of the variety of different models, lenders have been reluctant to embrace NRAS. Each AP model has different restrictions and some have severe restrictions for lenders in the event of a delinquency or repossession. A lender would have to review and sign off on every model in the NRAS market in order to develop a straightforward NRAS policy- and because of the variety of different models this simply isnt possible. So instead, what you has happened is that some lenders have approved certain NRAS models only.. so Rule 4 is ...its critical that you know which models are ok with lenders, and which arent.
To help, this is a list which will point you in the right direction
QAHC's "head lease" model has been signed off by rams, westpac, st george and firstmac. Each of the 4 lenders mentioned will officially lend for QAHC properties, subject to certain strict criteria. For example, StG , Westpac and Rams will do 70% LVR without LMI, and up to 85% with LMI. Firstmac will do 80% without LMI. All will accept only 65% of the normal market rental, and 3 of the 4 do NOT accept the NRAS incentive as tax free income.(firstmac does, however- so they have the best borrowing capacity for QAHC)
Questus use a Managed Investment Scheme model- The lenders and the criteria are exactly the same as for QAHC. Same 4 lenders, same criteria/LVR/servicing.
Ethan Affordable Housing uses a Non Entity Joint Venture. Bendigo Adelaide Bank and firstmac have signed off on this model. .....
Urban Affordable Housing Association- firstmac
Most other models are yet to be approved by lenders. Bottom line.... look into the approved participants models and their fees just as much as you look into the properties. Be realistic about which models the lenders support and how they assess borrowing capacity, and make your NRAS property and finance decisions on that basis.
