NRAS property investment stacks up and shouldn’t be demonised: Ruby Janssen
Have you ever wondered why politicians are so universally distrusted when so many of them work 24/7 for the benefit of their communities? It’s because they use 90% of their media time telling us that other politicians are not to be trusted. As a result we don’t trust any of them.
I find it really disappointing when this attitude spills over into other areas of our lives, and so it is with this in mind that I write in response to the article by Margaret Lomas on Property Observer entitled “NRAS is a tax scheme”.
Lomas’s article has sought to demonise NRAS and people associated with NRAS by the use of inflammatory language like “greedy developers”, “flippant claims”, “prostituted for gain” and “misleading in the extreme”. It is this approach to commenting on property investing that leads to people distrusting property investment in general. The result is that many Australians may miss out on potential investment benefits through analysis paralysis and “whom do I believe?” syndrome.
Like many other areas of business, and indeed our lives, NRAS and the property investment field in general may have its share of people who do the wrong thing, but there are also many professionals working for the benefit of not only investors but also the NRAS tenants. Lomas's pen portrait of NRAS is inconsistent with the fact the 57% of all NRAS allocations have been made to endorsed charities that are not-for-profit organisations.
My company has specialised in NRAS property services for well over two years. We have sold property from most of the major NRAS-approved participants to clients throughout Australia and have provided mortgage broking, financial planning, self-managed superannaution fund and legal services related to NRAS purchases. We are better placed than any other company or organisation in the country to know the facts of NRAS. So let me address some facts relevant relating to Lomas's article.
She asserts that “It’s pretty easy to counter the flippant claims of NRAS marketers” and uses three points to support her argument but all three are inaccurate and poorly researched. Let me take each in turn:
- “Middlemen” make big commissions – Almost all property (investment and owner-occupier alike) is sold by real estate agents who earn their income from commission on sales. All property prices factor in agent commissions and marketing costs. The vast majority of commissions being paid on properties sold are well under the $20,000 that Lomas claims as a minimum. I accept that commissions offered in Queensland have for years been higher than other parts of the country, but this applies to both NRAS and non-NRAS property.
- Oversupply – Lomas claims that NRAS allocations are made in lots of 100. This is incorrect. The size of allocations has varied. The minimum allocation size has been 12.
There are only a small number of areas where 100 or more NRAS allocations have been made. Official government figures show that NRAS allocations have been made across 849 postcode areas. Of these 639 areas have less than 50 allocations. There are some postcode areas with large allocations, for example, in Bruce in the ACT, but these allocations have been made to large institutions such as the Australian National University and will not be available to individual property investors.
The conclusion is that there is no evidence that NRAS properties are being released in large enough numbers into individual markets to push down market rents.
- NRAS allocations and hotspots – Lomas claims NRAS properties are rarely in hotspots. Hotspot locations are a matter of personal opinion, but let’s just look at how NRAS rates in some of the locations Lomas has identified as hotspots in the Property Observer article on October 8: “Plenty of regional hotspots to tempt investors as market hovers at five o’clock on property clock: Margaret Lomas”.
Here are Lomas's hotspots and the number of NRAS allocations in each: Ballarat (443 NRAS allocations), Bendigo (267), Gladstone (243), Mackay (313) and Toowoomba (146). I think there is fair opportunity for hotspot buying.
Lomas claims NRAS is purely a tax scheme. If this is the case then so too is superannuation and non-NRAS property investing. The provision of tax incentives by the government for superannaution and property investing in general underlie investing in these areas. We saw when Paul Keating removed negative gearing incentives for property investors that the effect was so dramatic that he had to quickly reinstate them.
There is absolutely no comparison between NRAS properties and failed agriculture investment scheme, as Lomas implies. NRAS properties are owned outright by the investors and can be sold as non-NRAS properties to investors or owner-occupiers at any time.
NRAS, which has been modeled on similar successful overseas initiatives, provides additional tax incentives on top of other forms of property investment, but it also offers plenty of choice of assets to purchase. There are apartments, townhouses, and houses across 849 postcode locations Australia-wide.
One point where I do agree with Lomas is that investors should be buying NRAS property, like any other property, on its investment merits. For residential property the name of the game is capital growth, and we always have this discussion with our clients before they buy.
NRAS properties sit side by side with non-NRAS property and have the same capital growth potential. But why buy a non-NRAS property with negative cashflow when the NRAS one next door has the same capital growth potential with positive cashflow?
In relation to the private tax ruling that Lomas refers to in the article, we have recently become aware of this private ruling also. Lomas implies that this ruling is some proof of a marketers'/developers' plot to mislead property investors. Conspiracy theories are best left to Hollywood.
Let’s be clear on what the ATO private ruling means. The ruling that she refers to is specific advice to one person by the ATO in answer to questions raised by that person pertaining to their own personal circumstances. Whilst the ruling may have general applicability it is not necessarily the case.
We have been in contact with a number of NRAS-approved participants in relation to this advice, and they were not aware of it. It is clear that this ruling has come out of left field for those involved in NRAS. I believe that the issue has now been taken up by one or more of the NRAS-approved participants with the government, as it is seen as inconsistent with the intent of the scheme. The government's NRAS website states “investors are able to apply property expenses and non-cash deductions and allowances against a lower assessable rental income, increasing the negative gearing benefit”.
That said, we have reassessed the cashflow modeling for NRAS properties taking into account this ATO ruling. Whilst the cashflow is reduced, we disagree with the size of the claimed impact. Everyone’s circumstances are different, but we would still expect the majority of people to be able to buy an NRAS property with positive cashflow.
When we started with NRAS it was largely unheard of by property investors. It has gathered momentum now and is more widely known but unfortunately recent promoters of NRAS and promoters of alternatives to NRAS have often not got their facts straight. So let’s get the facts straight, encourage our clients to embrace property investment no matter what their investment choice, and leave the inflammatory demonising to the politicians.
Ruby Janssen is managing director of Onyx Domain and is an author and a successful property investor.