NRAS: The risks and the opportunities

There is much being said in the media currently about the pros and cons of NRAS and speculation about the continuation of the program at all to achieve the initial 50,000 new dwellings proposed when the scheme was released in 2008. Many participants anxiously await the release of the final 12,000 allocations in Round 5. Applications closed in August 2013 and the wait has been frustratingly long for all concerned.

The initial intention of the scheme was to provide more low cost rental accommodation for low to middle income earners in locations close to their employment. This is intentionally not a social housing scheme. Rather, NRAS was seen as an efficient vehicle for private financing of infrastructure and a cost-effective affordable housing program. It is important to remember that historically approximately 30% of Australia's population are renters so there is a significant requirement for investors to provide these homes.

To date, more than half of all NRAS recipients have been community housing organisations.

My experience and observation in relation to the NRAS opportunities available outside of the community housing organisations, is often a lack of quality property investment advice being made available to, or sought by investors. Many businesses have emerged specifically to market NRAS only properties. The financial benefits of positive cash flow properties create a very compelling incentive to investors to purchase within NRAS. Unfortunately, in many instances, NRAS has been used to lure uninformed investors into substandard investments contributing to the negative press and ridiculous ignorant claims like “I would rather stick a fork in my eye than buy an NRAS property" from a Melbourne Buyers’ Agent.

I have great confidence in the validity of NRAS opportunities for investors who understand the basic principles of property investing and apply these principles when selecting an NRAS investment. It is essential to be equally discerning with the selection of an NRAS investment as with any other property selection.

When any "incentive" is made available to make the property more attractive, particularly to the risk adverse property investor, my advice is “proceed with caution and seek independent quality advice from a qualified property investment advisor”. These incentives include such offers as rental guarantees, lease back opportunities like DHA, and NRAS.

The most important criteria for any property investment purchase would have to be location. You need to ask-is the property within easy access to public transport, schools, employment hubs and educational facilities? Do employment growth opportunities exist in the area? Are there recreational, sporting and shopping facilities in close proximity and an emerging upward trend in basic household income? Is there an active pool of desirable tenants? Is there a higher percentage of owner occupier residents than investors? Is the area or location primarily being market to investors? What is the balance of investors and owner occupiers?

I liken an investment property to a rich fruit cake. A great fruit cake is filled with an array of fruit and nuts, spices and quality ingredients. It often has a layer of fondant icing. With or without icing (the sweetener) it is still a delicious palatable cake. NRAS, lease back schemes and rental guarantees are all like "fondant". They are the sweeteners. If the sweetener overlays an airy sponge cake- rather than a robust fruit cake, over time, rather than improving with age, the investment goes stale and dries out.

I have seen some brilliant NRAS opportunities and I am a great believer in providing buyers with education on the basic principles of sound property investing so they can make informed decisions when presented with what appear to be “great opportunities” by marketers and agents. Simply knowing what questions to ask can make the difference between a financial disaster and a successful investment outcome.