Dear Pitto,

Thank you for sharing your experience and your qualified comments. In reference to rent review I'd like to share with the forum our commitment with an owner:

The rental income of DHA properties is reviewed annually, according to market valuation, by a licensed 'independent' valuer appointed and paid for by DHA on behalf of the owner and tenant. Their analysis takes into account the property’s features and amenities, the weekly rental of comparable properties, and research of local market conditions.

DHA manages in excess of 11,000 properties on behalf of investors. While every effort is made to ensure the accuracy of rental valuations, due to the volume of transactions, it is likely that a small percentage of errors may occur (rental over valued and/or undervalued). Accordingly:

1.    Investors have the right to enter a formal review process whereby they appoint their own licensed valuer to determine the weekly rental and a compromise is reached (the terms and conditions of this process are stipulated in the property’s lease). Depending on the financial situation of the investor(s), this expense may be claimed as a tax deduction (professional taxation advice should be sought to confirm this);

2.    Some editions of the lease include a rental floor for the life of the lease, whereby rent is reviewed annually but never reduced below the starting rent in the event the market drops; and

3.    Other editions of the lease allow for the starting rental to be upheld until the second review date where the valuation is less than the starting rent at the first review.

As demonstrated in your case, DHA’s lease aims to ensure investors are suitably remunerated at market value (or higher in some instances). Further, provided the terms of a review process are met and evidence suggests an error has occurred, DHA strives to work with all parties to reach a mutually beneficial outcome.

We find that the majority of owners are happy with their rents. From the recent review exercise less than 1% of owners have sought review at this time. This is a favorable outcome as it means 99% are likely satisfied.

DHA has no interest or mandate to contain or restrict rent growth within the portfolio we manage. The rent valuation establishes the rent the tenant pays and is a pass through to the owner. DHA operates from the money we receive from fees on this transaction. Indeed if rents are higher DHA recieves more property management fees. DHA has an equal tension from the tenant and the owner in the establishment of rents. We want both parties to be happy.

The valuers we use are independent of DHA, selected by public tender, licenced, and do not recieve any guideance, reward or otherwise to do anything but provide an accurate rent assesment.

I am glad the review process worked for you. Thanks for being our customer!

Regards,

Defence Housing Australia

Dear emptypockets,

Again, I am a representative of Defence Housing Australia.

We find that the speed of a mid lease resell by an investor depends on the market conditions in the sale area, experience of the agent in selling investment properties with leases attached (common in the commercial and retail sectors), and of course the price expectation.

We don't count the actual number of mid lease resells, but it is not significant versus the total number of DHA leased (sold to investors) homes. Pehaps 1-2% of over 11,000+ per year.

I'd hope that investors looking at DHA homes take the approach from the beginning that it is likely a low risk, easy to manage, long term commitment that has some liquidity during the term if they run into difficulties.

If you have a short term horizon goal for your property investment then perhaps another asset class is more appropriate.

The properties that you mention were properties that Westpac Funds Management Limited purchased on a bulk basis from DHA in prior years. The lease attached to these properties is different from the lease offered to individual buyers and should not be confused with the standard DHA lease.

DHA will fully disclose all details of the house, sale terms, and lease terms prior to a buyer making a commitment. We are not interested in establishing a long term relationship with a buyer who does not know what they are getting and the mutual obligations. It is our intent and goal to make sure what you are told is what you get and as a government business an obligation we take very seriously. After all how many property sellers then turn round and make a long term relationship based on the asset sold with the buyer.

Starting yields for DHA homes are gross between 4 to 6%. Most homes I now see being priced are at high 4%'s to low to mid 5%. This is rising as rents on general are increasing and values are on average holding.

I can tell you that DHA homes are selling very well and have done throughout the backdrop of a more uncertain fiscal climate.   

Hi Tony,

I represent Defence Housing Australia and I thought I could add to your comments:

Home prices: We price to sell homes at the price we believe we can achieve in the market at that time. When we price houses we order a third party valuation and this forms the basis of the price offered to market. In the current market I believe our homes represent great value and any premium should be judged on that home in that particular market.

Management fees: For homes we charge a flat management fee of 16.5% (inc GST). This includes all property management, most maintenance and all letting, vacancy and lease costs. If you compare this fee to just the property management fee of most agents you discount all these additional costs. Access Economics compared our flat fee to variable fee offers and concluded that our offer represented value and on average savings.