Westpac and Defence Force Housing

hi steve
not sure the rational of westpac yes it does get its money cheap but the dha in sydney run at around 5 to 6% and I don’t think I would be investing in this trust.
I think you will see more banks going out of there way to invest as they have to lend there money some where.
resi property is a good investment but large banks should be looking at better then dha housing me thinks as the return just isn’t there yes the do give you a 10 year rental but at about 6% and you have to hope for growth in the area that they are in.
I will wait for macquarie to jump the same and if they do maybe my rational is wrong but I wouldn’t hold my breath.
westpac are doing some very funny things at the moment and note sure why they just put up all there consting on accounts atm etc not sure if the driver has fallen off the horse but someone is pulling the wrong strings for me.
I hope they do well and when they have a correction in around 2 years usually it takes that long to find out, the properties will come back on the market.
my .002

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If you want to get involved in some of the projects I’m involved in email to [email protected]

As you have pointed out Steve, the prices are over inflated and the fees are high. This would represent a safe investment for someone starting their investment portfolio, however the returns are low (Not close to positive cashflow) and I believe you can only sell the property back to the DHA at the price they agree too. There is no room for someone to add value to these properties to increase the rent, so I see them as a long term investment that is built on the hope of capital gains. There is no easy money to be made here in the short term.

You own the property just the same as any other property. You may sell when and to whom you wish but the lease must be honoured by the new owner.

Whilst some owners feel that the long lease should command a premium price on sale the reverse is usually true. As you cannot sell to a homebuyer you never get the same prices as you might should you be able to sell to a starry eyed young couple looking for a home. Instead you get a hard nosed investor pointing out al lthe faults and offering via a calculator…

Clients of mine believe this devalues the property by as much as 10%.

As an Army Officer I had a lot to do with DHA and the housing for my troops and I also lived in several for some years. Happy to answer any questions if I can. I know the inspection regimes, the maintenance plans etc

Cheers,

Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

hi steve
couple of thing
1. investing for growth is ok if you are in it for the long haul and if you wish to draw equity out along the way both of which I can’t see westpac in it for.
2. low cost of money yes they have a low cost of finance thresh hold but that low thresh hold is still expected to return a return that the share holders want and at 6 to 7% thats not going to happen.
3. I cant even see this as a hedge possibility as they are buying into dha which does not give the movement to sell for a quick growth in say 5 years as nobody can move in.
4. the only possible reason i can see is westpac have told its people to get the money that is hanging around in there account and get it out working for them macquarie has tried the 100% top up deal at 0% on the 20% above 80% lends and westpac are trying this.
5. I have had a look at building property for dha here in sydney but the returns weren’t there.
the trouble with all these banks are that they have burn’t the developers to the stage that now they can’t lend to them and they need to lend somewhere.
6. my idea is that westpac will do the same as seed capital for a listed trust that is you invest seed capital into a unlisted trust hold it with min 5 mil( in there case100mil) for 12 months and then list as a listed fund and try to flog it off to the superfunds and maybe overseas investors, this is not unusual the only problem is the unlisted usually does a return of over 15% or no one looks at it and for westpac to pull 15% out of resi property is a big ask.
I think someone has not pressed the right buttons on there calc because even a superfund would find it hard to explain investing in a listed trust doing a 6% return and doing it long term unless westpac are next going to buy lj hookers so they can sell the properties also.
I think you will see more and more of these types adventures into different markets as the banks keep getting hit by what I call the active lenders rams, aussie, mortgage group,st george even nab has change tact mid stream and a heap of others.
I am waiting for the big boys from asia to start lending the hsbc,bank of china,asia development bank with there 2% lending and I don’t even think they would buy this fund if it listed.
seed capital for unlisted trusts to go to listed runs at around 41% p/a so this fund doesn’t look very attractive.
my .002

here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]

I would recommend this type of investment to a person who was very very concerned about the perceived pitfalls of property investing. Someone who watches ACA and feels that all the horror tenants are lined up waiting for them to invest. Someone who needs a lot of security. At the end of the day they are well built brick homes in desirable areas built to a standard above most spec homes. They will go up with the market.

DHA do take care of a fair bit of minor maintenance with their in house repair team. Things like flyscreens, tap washers etc are generally replaced quickly and at no cost to the landlord (at least this was the case when I was a tenant). Major repairs are attended to promptly and to a decent standard. Tenant damages are repaired at the tenants expense and they can simply garnish the salary if they need to via normal ADF Pay avenues.

As a trade off for the high management fee you are assured of 52 weeks rent PA even if the place is empty. You will get it back in a fair wear and tear condition as you would expect of a 6 or 9 year old home. You will get a repaint and new carpets depending upon the lease length.

It is a hands free property investment.

You are also assured of a decent standard of tenant. These homes are provided to married couples only and so, even if you get a junior sailor, soldier or airman you can be assured he or she will be married and not simply sharing with a bunch of mates.

Personally I wouldn’t buy one unless I was convinced of growth in the particular area. I would prefer something I could add value to myself. This is simply not possible with DHA. They seek new finished properties and have a standard set of specs.

But on the other hand I would never suggest it a bad investment for the right investor.

Cheers,

Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

I wouldn’t touch such REITs with a barge pole.

I checked out Defence Housing as an investment years ago. The gross returns were too low and therefore the investment too ‘negative’.

An investment trust’s returns reflect the quality of its underlying assets. If the underlying assets can only provide negative cash flow returns, how is a trust they are put into going to provide positive returns??? . . . . unless the market is smart enough to devalue the real estate in the trust (and therefore the trust units) to the point where the returns are positive.

And that is unlikely to happen, considering the market’s penchant for negative geared property.

To plagiarise Steve’s and Dave’s expressions:
We should NOT be buying someone else’s (Westpac’s) solution.
We should be buying problems we can solve.

Andrew

Hi All,

The simple fact is that these DHA properties are over priced, have poor rent returns relative to cost, have high management costs, are inflexible in their use and generally soak up too much cash. They would have to get very high capital growth to compensate for all of this.

I am sure Westpac have some sort of cunning plan that involves making the punters feel secure because of the beneifts that DHA offer. However on pure financials I wouldn’t touch DHA with a barge pole.

I noticed that the DHA was listed as sponsoring a Residex report recently… mmmm… interesting. Look out Steve !!! they’ll probably come looking for you to help promote them next. [blink]

All smelling a bit phishy to me. [blink]

I think I’ll stick with your types of strategies Steve. Ones that clearly show how to make a profit from property

Todd Burns
http://www.freepropertyhelp.com.au

As a 20 year RAAF member and having owned a DHA leaseback house way in the late 80’s, and been a Housing Officer ,I wouldn’t touch these investments with someone else’s money. As mentioned – huge management fees, expensive purchase prices which are out of touch with current prices and they are a bugger to onsell. The leases are ironclad – you cannot break one and then sell it without the DHA lease under any circumstance. If you were looking for a neg geared property for an exceptionally long time then maybe it would be for you, but not for most ppl. I get more rent for the house I built next door which is built to DHA standards but privately managed with a real estate agent and leased to a RAAF couple than the DHA investors get, they always pay low market rate rent. So my advice, find where there are shortages of DHA houses and see if you can buy a block of land and put a house on it yourself and rent it out to a military couple, you’d be much better off with the flexability. HG[biggrin]

Amusing how the pluses and minuses of this topic get up – just when I’m reassured in my thinking of no go and an unequivocally clear case, bang, someone comes up with good reasons!

Goes to show, rarely is an investment bad of itself (although clearly there can be better and worse ones). Most of the time, it all depends on your goals and aims – and is the investment consistent with those? (as Simon as shown so well.)

Thanks for the alert, and the ongoing discussion.

Hi all.
As a new investor, I wouldn’t touch them either, given all the comments on this forum. I did look in to buying some DHA property once, however found them to be very negetive geared. The glamour of the properties they had captured me, but the number crunching did not. Thanks to Steve’s tips!
Interesting discussion.
Thanks,
Dianne