Banks baulking at lending on many NRAS properties as selling commissions cloud valuations

The National Rental Affordability Scheme is facing hurdles with many banks refusing to lend to investors buying properties developed under the scheme.

The government sponsored investment scheme allows certain developers to build properties which are then sold to investors who rent it out at 20% below the market rate to eligible renters.

But developers are reportedly selling the properties at a price above what the banks think they are worth.

AVJennings chief executive Peter Summers says companies such as his own are having difficulty settling sales of NRAS properties.

"You can get sales away but they're falling over because of valuation issues," Summers told The Australian.

"I think it's a very good product class for investors but the banks are still a reluctant to lend to NRAS properties.”

Gavin Hulcombe from Herron Todd White says the complexity of the scheme combined with the valuation differences mean banks are unwilling to lend on the properties.

"It's the complexity of the schemes, particularly the leases and the exit and entry clauses that are causing concern,” Hulcombe said.

He says commission payments from developers to financial planners to sell the properties had pushed up the price to complicated the valuation.

Property commentator Margaret Lomas recently write that re-sellers can receive a $25,000 plus commission to sell NRAS properties which inflate the price.