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!
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