Any info on NRAS housing

I have looked at these. From my understanding they need to meet a few specific criteria

1. They need to be new builds – Probably because the government wants to keep housing supply high
2. You need to rent them out for 20% below the retail rental value

I was watching the Sky Business Chanel last weekend, the TV program "Your Money Your Call".

A comment was made that the NRAS was originalyl intended for commerical purchases…but now it has started being marketed to individual investors through intermediaries….apparently there is a looming ATO decision surrounding whether the tax advantages will continue to be provided to individuals…

Sorry no links but it was mentioned my Margaret Lomas who from what i can tell is quite well respected in the industrty. http://portal.destiny.net.au/dotnetnuke/Home/tabid/58/language/en-AU/Default.aspx.

My understanding was that the ruling is to protect the individuals who had already bought into the NRAS via an intermediary…so something along the lines of making sure it is tax deductble for existing individuals who have bought into the NRAS…but clarifying what will happen for future individuals buying into it (to keep it in line with the original intentions of the NRAS)….and i think it is that 'clarification' that everyone is waiting on.

Reading the background section of the link you provided it is under the 'busines section' of the ATO site and it states it is intended for 'large scale invesmtent'….so this does down consistent with what Margaret said.

I'd also be interested to hear any further information. So far from what i've seen about the houses currently approved under the NRAS is i couldnt find any in areas i wanted to invest. However i did read they are looking to ramp up the number of approvals so more to come to the market.

Cheers

Love your passion! Can’t defend any of those initiatives right there! With NRAS you can opt out of the scheme and return your rental rates to market value easily.

Your advice still stands, it always pays to be diligent in your research because circumstances change especially with governments.

So applying that logic to NRAS property investments could mean that selecting an investment that strikes a nice balance of cash flow and predicted capital growth to insulate you in case you wish to opt out of the scheme.

Just a few notes on buying an NRAS property that we discovered the hard way recently.

• Prices have definitely been jacked up, no question. Easy to verify with a property search.
• 1/3 of the rebate is lost in fees. So that 91K (Qld!?!) is closer to 60K
• Developers and vendors have taken advantage of the 'rush' to get into NRAS and as a result are taking otherwise commercially untenable positions as far as contracts and conditions are concerned.

Be very wary of the hype. One particularly unscrupulous pair are pushing properties in Qld. The selling agent 'recommends' a good conveyancing solicitor – who happens to be a mate of his – who takes your $1,200 conveyancing fees and sends you a 1-line email saying "everything is OK". When pushed to answer specific concerns, he gets narky and demands $400/hr to respond. Fortunately we took our conveyancing elsewhere and were provided with a 6-page document of problems with the contract.

Our attempts to get any questions answered were met with a resounding "take it as-is or leave it". One critical item was the conditions put on by land contract that certain provisions had to be met by the builder. They refused to add that into the contract, or even discuss it. No assurances that the property would even be built before the NRAS approval expires. They even refused to correct mistakes on the front page of the contract that our financier required before they'd sign off!!!
 
Most people would probably take the "advice" of the "recommended" solicitor and go blindly into the sale without concern. Well, we certainly weren't prepared to do that.

In hindsight, the NRAS deal isn't anywhere near as good as it sounds. The old adage "if it sounds too good to be true…" applies here. I was hanging my hopes on another government stuff-up (like the insulation scheme) but it's the developers that are the real winners here. With no control over the lease, 1/3 gone in fees, the hit up-front for the interest during development – think very, very carefully before you jump in.

• Prices have definitely been jacked up, no question. Easy to verify with a property search.
• 1/3 of the rebate is lost in fees. So that 91K (Qld!?!) is closer to 60K

Prices Jacked up-  thats where valuations are key.  This problem isnt exclusive to NRAS property.
1/3 lost in fees-  its a broad statement but not entirely accurate- depends on which NRAS model you buy through.

I'll try and provide some broader perspective below, because NRAS seems to be misunderstood. Perhaps this may assist;

First and foremost, its important to understand NRAS from the beginning. NRAS incentives are applied for through a tender process, by Approved Participants- otherwise known as consortiums. These groups have been appointed by FAHCSIA.  Developers pay these AP's a fee to secure them X amount of NRAS incentives in a development, from FAHCSIA and the relevant state Housing authority ( because the NRAS incentive is made up of a state and federal component)  The tender process is rigorous, and incentives are allocated to properties where both the state and fed departments believe there is a need for affordable housing. Approved Participants include groups such as QAHC, Questus, Aspire, National Housing Group, Ethan Affordable Housing, UAHA and others…   a full list is available on the FAHCSIA NRAS website.

Once the NRAS incentives are secured, developers have a choice on how to market and sell their NRAS approved property. Some will use in house marketing teams, others will sell via property groups, seminars, internet etc.  This is why you are seeing alot of property groups popping up when you do a google search for NRAS, showing lots of different properties. I must stress, in almost all these instances, the person selling the NRAS property is NOT the Approved Participant. They are usually a property group being paid a marketing fee to sell the property. Of itself this is not unusual or problematic. (After all, real estate agents are paid to sell properties, too.) but excessive marketing fees can be a problem, as valuers will look to reduce valuations on stock where they know the seller has a high marketing fee reputation. This isnt the case for all property groups though- so don't tar everyone with the same brush.  Just be mindful..there are cowboys in every industry- so deal with reputable property groups who have been in business along time and have a proven track record. Some approved participants have deliberately capped the marketing commission payable to a property seller, to ensure there is no gouging. Ultimately though, lenders will undertake valuations.

OK…so the AP has secured X amount of NRAS incentives for a developer.  The developer begins selling stock, 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 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 is eligible to receive the NRAS incentive.  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 is where people start to get confused, and its the reason why finance for NRAS has been difficult.- because each of the approved participants approaches this role differently. Firstly, each has a different contract/model,  which the NRAS investor is required to enter into, and each has a different set of fees and charges.  There are three basic models; 
One AP uses a Head Lease Agreement, and charges significant entry fees and ongoing property management/compliance fees.  Properties are rented at 25% below market rental
One AP uses a Managed Investment Scheme, has lower entry fees and lower ongoing property management/compliance fees. Properties are rented at 20% below market rental
All other AP's use a Non Entity Joint Venture. Fees and charges vary. Properties are rented at 20% below market rental

Because of the variety of different models, lenders have been reluctant to embrace NRAS. A lender would have to review and sign off on every model in the NRAS market in order to develop a straightforward NRAS policy- so instead, what you will be seeing is that some lenders are approving certain NRAS models only.. so its critical that you know which models are ok with lenders, and which arent. This is much more important than the actually property itself, because its the key to obtaining finance.

For example, QAHC's "head lease" model has been signed off by rams, westpac, st george and firstmac. Genworth has also signed off on the QAHC model. Each of the 4 lenders mentioned will officially lend for QAHC properties, subject to certain strict criteria. For example, they will accept only 65% of the normal market rental, and they do NOT accept the NRAS incentive as tax free income.( firstmac does, however- so they have the best borrowing capacity for QAHC) Westpac will do 85%LVR plus LMI. Others will do 80% LVR.

Questus use a Managed Investment Scheme model- and Genworth has also signed off on this model. firstmac and st george have also signed off on it, and will both lend against Questus NRAS  stock. Again, firstmac accepts the NRAS incentive as assessable income, St G does not.   NAB will probably also take a few Questus deals- case by case…but mainly through branches. They also wont use the NRAS incentive as income for servicing.

Ethan Affordable Housing uses a Non Entity Joint Venture. No entry or exit fees… Adelaide Bank and firstmac have signed off on this model. …..

What Im trying to demonstrate is this- the first question you should ask anyone , when considering an NRAS property, is "who is the approved participant?" Research the  individual Approved Participants models, first. When you've done some comparisons, decide for yourself  whether they have property you are interested in. If you find stock from a participant that doesnt have the support of lenders, you'll probably find it next to impossible to finance it anyway, so its probably a waste of your time.

As far as 1/3 of fees being lost is concerned- research the models. Some have very flat fees. Ethan for example, charges 7.5% of the NRAS incentive- thats it. Questus also has cheap fees. Others may not be quite as cheap…but its up to each individual investor who is considering an NRAS purchase, to understand the various models fees and charges… and do a comparison before deciding on what they wish to buy. Im not recommending one model over another. Im just demonstrating there are differences which need to be better understood by people here.   If you want property in a particular location and its being sold under a more expensive model, and if you are not interested in other properties, available through cheaper models, in other locations… its something you'll just have to accept as a cost of doing business.

Bottom line….  look into the approved participants models and their fees. Be realistic about which ones the lenders support and how they assess borrowing capacity, and make your NRAS property and finance decisions on that basis.

No problem Galen. NRAS is really poorly understood unfortunately, so I'm happy to be able to provide some broader perspective.  The tax benefits are what everyone is focusing on, which is understandable of course- after all, this is an investors forum, but for the lender being asked to provide finance against a security which is being entered into a scheme for up to 10 years, its more complicated. Because the scheme is being administered by  a wide variety of different Approved Participants models, to the lender, the model is the most important thing..- as explained in my previous post.

If you search any of the NRAS websites online, or attend any property seminars where NRAS is being promoted, the "sellers" almost NEVER talk about the approved participant or model.  I find this really astounding, as the model is literally the key to NRAS approved finance.  

Anyway…having said that, I wanted to mention something else that's happening with NRAS. This might be a little controversial, and I am making no accusations and pointing no fingers, but it needs to be shared, just so that all forum readers are aware of it, and are aware of the risks, should they elect to take this approach.   The reality is this – A lot of NRAS properties are being successfuly financed with lenders who do not actually accept NRAS properties as suitable securities.  In other words, lenders who don't do NRAS deals.   In addition, they're being financed at LVR's above 85%, which allows people who might not otherwise be able to qualify for a proper NRAS loan, to qualify for a conventional investment loan. ( because they don't quite have a 20% deposit plus costs, but they do have a 10-15% deposit plus costs)  Now, this is obviously at odds with everything Ive written in my previous post, so anyone reading this should rightfully ask, how can this be?   The reality is,  the only way this can be done is by not disclosing that its an NRAS property, when applying for finance.   Again, people should rightfully ask…how can this be? How can a lender not know its an NRAS deal?   Well its actually very easy… as none of the contracts of sales associated with NRAS properties, mention NRAS.   NRAS is entered into through the agreement with the approved participant. If you take another look at my previous post, the NRAS side of things is entered into via a Head Lease Agreement, Managed Investment Scheme or Non Entity Joint Venture. NONE of these three "model" types are mentioned anywhere on a standard residential property contract of sale, so unless you disclose it to a lender, they probably wouldn't have any idea the property has an NRAS allocation attached to it.

So while this may offer a short term solution to the problem of NRAS finance being limited to certain approved participants models, and  having slightly lower LVR's and slightly more restrictive servicing ( except in the case of firstmac- who use the NRAS incentive towards servicing), its still a very  rocky road to tread, because it essentially can be construed by a lender as a false and untrue declaration of income and circumstances. I wouldnt want to take a chance like this, get caught, have my 90% LVR loan called in, be unable to refinance, be forced to sell, and not even make enough back to cover the purchase price, legals and stamp duty I'd outlaid when I bought the place….

So again, I would recommend as strongly as possible that investors considering NRAS should be budgeting to provide a 20% deposit plus costs, to keep the deals at 80% or below,  they should be buying property through one of the approved participants models approved by Westpac, Rams, St George, Firstmac, Bendigo Adelaide bank…. and they should definitely be disclosing NRAS to the lender when applying for finance. 

Just my 2 cents…

Thats useful information Sue, but it's only information about QAHC.   As I've stated in other posts, QAHC is not the only NRAS Approved Participant whose model has been approved by lenders such as St George, Westpac and Firstmac, or approved by Genworth LMI….  so Id like to talk about the other models too, so we arent being seen to be recommending one model over another.

I would still urge potential NRAS investors to look at a variety of Approved Participants on the basis of three things. Lender Finance Availability, Cost of the model, and Property locations/prices;

 Here's a rough guide of the state of play as of December 2010.  Finance- which lenders will do what, generally speaking? FYI-Genworth has approved each of these models to 90% LVR, FYI. You'll see that no lender is offering loans to 90% though.

QAHC   – St G and RAMS – 70% without LMI 80% with LMI Westpac 70% without  85% with. Firstmac 80% without LMI
Questus- St George as above, NAB case by case up to 80% without LMI, Firstmac 80% as above
Ethan Affordable Housing- Bendigo Adelaide 80% without LMI, Firstmac 80% as above
UAHA- Firstmac 80% as above
Yarran – St George as above
Aspire- St George as above

The models- There are other NRAS models other than the ones Ive listed, but they arent appoved by lenders ( yet) so the models above are probably the only ones worth talking about at the moment. Check the entry and exit costs for each model. Check the ongoing costs to administer NRAS, also. Check the property managers they're using. You'll find significant differences in the costs of some models… which is fine- its a free market…but factor it in to your thinking.

The stock/locations/prices…. each NRAS Approved Participant has stock in different locations. QAHC and Questus for example, have mainly got house and land stock in Qld. Ethan mainly has house and land in Vic, and some Off the Plan in Darwin…. Yarran has regional stock in WA, etc etc… as more NRAS incentives are awarded by Fahcsia, across Australia, more stock will become available in other locations too.
Remember that whether you purchase a 250K 3 bedroom property through Ethan in Bendigo, or a 450K 3 bedroom property through QAHC in Qld…the NRAS incentive is the same- $9140  this year).
The costs of the property and the costs associated with the Approved Participants models are the variables. But just because one model is dearer doesnt mean its not a good model. For example,  if you believe a more expensive Qld property attached to QAHC has better capital growth potential, dont be put off simply because the QAHC model is more expensive than the Ethan model, for example. Ethan cant offer you that particular property in that location- so you have to accept  the QAHC costs as the price of doing business in that example…

More important than anything- as long as you buy NRAS stock attached to one of the Approved Participants listed above, and use one of the lenders listed, you know you can access legitimate NRAS finance, subject to LVR/LMI limitations.  The rest of the decision is really just about ongoing costs, location and potential for capital growth…