Another expert comes out against NRAS

Since an opinion piece published by Property Observer last week, where one buyer's agent said he'd stay clear of the National Rental Affordability Scheme, another buyer's agent has come out against NRAS properties.

Last week, Todd Hunter, buyer’s agent, director and location researcher for Sydney-based wHeregroup, said that he would "rather stick a fork in his eye than buy NRAS."

Now Propertyology's managing director, and Australia's Buyer's Agent of the Year in 2012 and 2013, Simon Pressley,  told Property Observer that he believes that NRAS properties are "terrible investments".

"NRAS is something which has attracted considerable air play and clients often ask me for my opinion on them. NRAS was introduced in July 2008 as part of the Federal Government’s (GFC) building industry stimulus package. It was designed to give the building industry a boost and address the growing shortfall of affordable accommodation. It is a not a property investment scheme," Pressley said.

“There are tax incentives for developers on projects which meet specific NRAS criteria. Similarly, there are tax incentives of up to $9,140pa to property investors who elect to buy one of the NRAS properties," he said.

Pointing out that on the face of the scheme, the rental returns and tax incentives look great, he believes otherwise.

“If they were such good investments why wouldn’t the federal government themselves hold on to them? Or, the state government? Or, the local councils? Instead, the government is trying to lure investors via tax incentives and rental guarantees on properties that are over-priced, mass-produced, and offer very limited capital growth potential," he said.

He warned that marketing companies promoting NRAS on behalf of developers often lead with 'positive geared' and 'rent guaranteed' tags.

“I give NRAS properties a big “Buyer Beware”! Whether it’s a new housing estate or a large apartment block, owners of NRAS properties must have their property managed by NRAS agents and the properties can only be rented to NRAS eligible tenants."

He pointed to property management fees around the 13% mark, compared to 8.5% for standard residential, rents at a 20% discount and "quite involved" lease documents diluting the extra tax incentives.

“A number of banks are not comfortable lending money against NRAS properties. The banks which are comfortable with them require a minimum 20% deposit because mortgage insurers will not accept the properties," he said.

“Now, picture this, you purchased a NRAS property a few years ago and an investor within the same complex or estate as yours now wants to sell. The extra red tape and constraints imposed on owners will result in less interested buyers for the property. They certainly will not be in a position to attract a premium sale price and will probably have to discount the price substantially in order to move on. The minute this sale occurs a benchmark has been set for valuers and potential buyers of your property.  In addition to all of this, the fact that NRAS properties are located within large (mass-produced) complexes and estates places an additional ‘ceiling’ on capital growth.”

Do you have a different view on NRAS?

Email: jduke@propertyobserver.com.au to have your say

Corrections from Simon Pressley:

I am currently purchasing an NRAS property with 10% deposit off from a large financial institution

If you want to sell you can opt out of the NRAS scheme if desired to "attract more buyers".   

You are not locked in for the full ten years in any way