• Moderating house prices declines and stronger rental growth saw NAB’s Residential Property Index move just back into positive territory
• National house prices are still falling, but the pace of decline slowed
• Rental growth is accelerating and forward expectations have been revised up
• There was a notable increase in first home buyer activity in the new property market, likely reflecting a more benign interest rate outlook and softer house prices. Investors and overseas buyers were also more prominent in this market
• Demand for new property from first home buyers, Australian investors and overseas buyers increased
• Demand for new residential property is expected to strengthen across all property types over the next 12 months
• Tight credit and housing affordability is still seen as major impediments to new building

Click here to view the full report.

I admit it, I’m biased. I like property. While I trade in the equity market, my first love is property. But this is the very hub of my argument – I’m not alone. You’re biased too. In fact we all are.

It’s this very individual bias that has more impact on successful investing than scores of expert opinions about the merits of various investments. Thankfully we are all different, otherwise we’d all be buying the same house or shares.

The truth is, as a means of creating wealth, property and shares are very different and they are suited to very different types of people.

Property investment is really a “business”, albeit usually part-time, rather than an “investment.” In many ways it’s not unlike buying a franchised business – particularly if you are buying from professional property investment advisors who help you with the “business” systems.

You buy or build your asset which you operate for a period of time. You have regular trading revenue (i.e. rent) and operating costs (e.g. interest, management fees, maintenance cost). At some point you decide to sell your property and hopefully it’s increased in value to provide you with a profit. It’s just the same as if you were a franchisee.

The key to success here is that as a property investor you have to be prepared to involve yourself in the “operation” of your property business. Some would see this as a hassle while others see this as a key advantage.

The advantage is that by having direct control of your property “business” you have the choice to work your “business” to increase its value. This could involve, for example, small renovations or larger scale sub-divisions. You can create equity yourself.

In particular this suits people who are self-employed or people who like a tangible asset. These people like control over their own destiny.

By contrast shares suit those who are more interested in passive investment without overhead costs and where someone else (usually a Board of Directors) is in control of growing the asset. It also suits people who are more analytically oriented and like to research the ins and outs of various companies and markets.

Of course, there are also those who find the equity markets more thrilling and enjoy the daily entertainment of share market reports bookended by the weather report and the tattslotto results.

Jokes aside, the bottom line to all of this revolves around two emotional rather than analytical considerations.

First you will commit time to what interests you. If you commit time to something you will be more knowledgeable and therefore you are more likely to make good investment decisions. I was sitting with a client recently who had six investment properties and he said “I’ve tried the share market but it all seems too much hard work. I just keep coming back to property”. There will be another group of people who will say exactly the opposite.

The other consideration is what I’ll call the 3am factor. I don’t know what it is about lying awake at 3am but it brings out the demons. So if you’re someone who lies awake at 3am worrying more about the mortgage debt on your investment property and your tenants then property doesn’t sounds like it will be much fun to you. If you’re lying awake worrying about the foreign debt crisis and share market crashes then equities may be too stressful and sleep hard to find.

In summary, you’re more likely to succeed with something you put your positive attention on and so your emotional response to your investment choice is really more important than some other person trying to convince you by some “rational” argument towards one form of investment or another.

So I’d suggest you take some time to consult your emotional compass to see whether property or shares make you excited. It’s not a competition but a personal choice. But I hope you find excitement in one or the other because I’d hate for you to end up lying awake at 3am worrying about why you aren’t being paid enough per hour to support the lifestyle you’d like.

Property expert and author Ruby Janssen estimates an incentive she has dubbed the ‘Second Home Owners Grant’, is worth $113,817 over 10 years to purchasers on new investment property.

The Grant is provided to people buying new investment properties for rent under the National Rental Affordability Scheme (NRAS).

Established in 2008 with bipartisan support and the cooperation of Federal and State Governments, NRAS was designed to combat Australia’s chronic housing shortage by stimulating the construction of new dwellings for rent.

“We’ve spoken to thousands of people interested in buying a second property, and it’s astounding just how few know about this grant,” says Ruby Janssen who is the Managing Director of Onyx Domain - a leading property advisory and professional service company assisting people to create wealth through property.

“Our clients are very excited when they find out about the grant but almost without exception they ask, ‘why haven’t we heard about this before?’” says Ms Janssen.

According to the National Housing Supply Council (NHSC), Australia is currently undersupplied by more than 178,000 homes.

The latest State of Supply Report released by the NHSC states that, “The gap between demand and supply is likely to continue to grow,” with the undersupply expected to reach 640,000 by 2029.

According to Ms Janssen, the Grant overcomes the major barrier most people have to investing in rental property which is the need to contribute each week to the loan interest payments.

“In the majority of cases the Grant means property investors have positive cash flow. That is, the property more than pays for itself without the investor having to contribute each week from their pocket.”

“Everyone knows about the First Home Owners Grant because it has received massive media attention and Government promotion” says Ruby Janssen.

“Increasing the supply of rental housing is just as important as assisting new home owners so this ‘Second Home Owners Grant’ deserves similar attention.”

For more information go to www.nrasincentives.com.au

To see a list of NRAS properties on offer go to onyx.net.au/property-catalogue

The premise of the article was that the banks have conspiratorially created a ‘blacklist’ of buildings and that as a rule banks across the board refuse to finance all NRAS properties, which is entirely incorrect. By its own admission its information was at least 10 months out of date.

This is a good reminder of how dangerous it is to believe everything you read or hear in the press. I mean, here we were on the same day getting a number of NRAS loans approved and we were reading an article saying it was almost impossible.

It is true that 12 months ago NRAS was relatively new in the market, so the risk averse finance industry was a bit wary of some of the NRAS properties with a ‘headlease’ (which is a tiny percentage of the properties we list). There have been and still are some lenders who will not finance NRAS properties, but throughout 2011 many lenders have come on board.

Westpac is a perfect example of this. Last August they announced a policy which refused finance on NRAS properties, however they now have one of most extensive NRAS offerings.

Sales of NRAS properties are a real bright spot in the current market.

I just wanted to help balance up the information and make sure that you had the real truth and not just out-dated misnomers.

Make sure you get your facts from experts who know, not just reporters who want to create drama and only have a limited exposure to a particular topic.

NRAS represents a fantastic opportunity for buyers particularly in the current market and it has the potential to solve Australia’s critical housing shortage.

If you want to see the original article you can check it out here.

Perhaps we should be thanking the US government and S&P for the treasury bond rating downgrade, because they’ve contributed to a creating a perfect buyer’s market for property investors.

While a couple of weeks ago we were looking at interest rate rises, markets are now pricing in big interest rate cuts, with both the Commonwealth Bank and Westpac already slashing their fixed rate home loans.

We’ve been experiencing a bit of a lull in property growth in recent months so some sellers are getting a bit desperate, making now the time to a get a great bargain.

Lower interest rates will attract further investment which could contribute to a property boom similar to the one we saw after the GFC in 2008.

While the luxury end of the market may experience some negative fallout, the affordable housing market is still undersupplied by over 178,000 dwellings according to the National House Supply Council.

This makes NRAS properties perfectly poised to take advantage of the current investment climate.

And, as always with property, keep in mind that it’s a long term investment. You’ll be receiving your annual NRAS payment for 10 years to come, so market fluctuations will have little effect on your overall asset growth.

We show you here two typical examples of these calculations.

The Affordability Assessment we do is unique. It differs from the way the banks do their assessment because it is designed to help a property buyer/borrower make their own decision about affordability rather than help the bank decide if they are going to provide the loan.

We compare the purchaser’s current position to their position after the property purchase. Furthermore, as a simple risk assessment, we calculate the position as if interest rates were 1% higher.

The bottom line figure in our assessment is Discretionary Income. Discretionary Income is calculated as income less finance commitments. So the current Discretionary Income is the available funds that our client has available to spend on their lifestyle.

By comparing the Discretionary Income between current, post-purchase, and “post-purchase with a 1% higher interest rate” the client has a very simple means of assessing the impact on the funds available for their lifestyle.

It is normal for the banks to exclude tax depreciation benefits from their affordability calculations and we have done this as well because this is usually an unknown figure which requires an assessment by a quantity surveyor on each property. The impact of this is that we are likely to be under estimating the Discretionary Income post-purchase. For this reason our post-purchase figures are conservative.

Couple Purchasing NRAS Property

In our first example a couple are buying a NRAS Property – we’ll call them David and Jenny. David earns $72,000 per annum and Jenny earns $33,000. In the table below the left hand column shows their current situation. Their current Discretionary Income is estimated at $78,897.

Because the NRAS property has positive cash flow they end up with a higher Discretionary Income after the purchase.

The impact of a 1% interest rate rise is smaller than you might expect because the increased interested payments are balanced by increased tax deductibility. In this example the rise in interest rate brings them back to a marginally lower current Discretionary Income.

The assumptions and considerations behind these calculations are:

• Rental income – 80% of gross rental to allow for costs
• Tax – Tax calculation incorporates tax on earnings and allows for deductible interest on investment debt repayment. No allowance for depreciation has been made. Further inclusion of depreciation should reduce the tax payable
• Loan Repayment – We have calculated loan repayments using the current loan repayment plus repayments on new debt using interest only payments.

Individual Purchasing NRAS Property

To show you another example, Alan earns $81,988 per annum. He has an existing mortgage and is buying a NRAS property. In his case his Discretionary Income increases from $47,305 to $48,923. Again, even with a significant increase in interest rates of 1%, he is still almost cashflow neutral.

]]> http://onyx.net.au/2011/07/nras-positive-cashflow-property-affordability-assessment/feed/ 1 http://onyx.net.au/2011/03/rent-hike-to-drive-demand-for-nras-property/ http://onyx.net.au/2011/03/rent-hike-to-drive-demand-for-nras-property/#comments Thu, 03 Mar 2011 21:51:10 +0000 Ruby Janssen http://onyx.net.au/blog/2011/03/rent-hike-to-drive-demand-for-nras-property/ Rental price increases of up to 7% are anticipated for Australia’s residential property market and are likely to increase demand for National Rental Affordability Scheme (NRAS) properties from both tenants and investors.

Independent market analyst RP Data recently predicted increasing rent prices for the coming year. Rents in Australian capital cities increased by 1.4 per cent during the last three months of 2010 and rose by 4.2 per cent during last year. This means that the discounted rents offered by NRAS will be in great demand as rents rise through 2011 with tenants seeking relief from increasing prices. Also, rising rental yields will mean that property investors are likely to flock to NRAS properties in 2011.

For investors, market rental increases will absorb much of the 20% reduction in rent they offer to tenants as part of NRAS so the investment return is improved.  Investors will also be keen on the high tenant demand for their property because it offers more choice of quality tenants and a lower vacancy rate.

What is driving rental prices up?

As population growth in Victoria, and particularly Melbourne, continues to be strong, there is increasing competition for rental properties.  This drives rental prices up, in turn making it harder for renters to become owner-occupiers, and thus keeping more people in the rental market, further increasing competition.

This phenomenon is supported by evidence from housing purchase statistics.  The latest housing finance data from the Australian Bureau of Statistics demonstrates that last November Victorian first home buyers totaled just 16.3% of all owner-occupier purchasers – the lowest proportion of first-home buyers since May 2004.

What does this mean for property investors?

This is great news for property investors for a number of reasons.  Firstly, there is the obvious benefit of increased rental yield from investment properties.  Secondly, a competitive rental market means that vacancy rates will remain low and you won’t have an empty property sitting on your hands for extended periods of time.  Finally, it means that landlords will have a great selection of tenants to choose from and can afford to be selective in their choice of tenant.

How does this affect NRAS (National Rental Affordability Scheme) investments?

High rental yields and a tight rental market are great for NRAS investments too.  As you may or may not know, owners of NRAS approved properties agree to rent their property at 20% below market rent to eligible tenants in return for generous government tax free incentive payments.  One of the great things about the NRAS scheme is that the rental for the property is genuinely held in line with the market rental value of similar properties.  This means that as rental prices increase, so will the rents paid by NRAS tenants – just with a 20% reduction applied.

Furthermore, as rental prices increase, tenants are increasingly on the outlook for a good value rental property.  NRAS properties, with their 20% reduction in rental price, will become even more attractive to eligible tenants.  This means that NRAS property investors can expect to have even lower vacancy rates than normal residential property investors.

All in all, it’s a great time to take advantage of the benefits offered by the NRAS scheme.  Onyx has recently made available NRAS approved apartment properties in the Melbourne CBD, right in the heart of where the greatest rent increases are expected.  Find out more about these properties on our NRAS property listings site, or pick up the phone and give us a call on 1300 1400 15 if you’d like advice on purchasing NRAS properties.

In the final part of this series, the team answer questions from the Webinar audience on topics including finance options, purchasing through self managed super funds and what happens if you want to exit the NRAS program.

Presenters: Ruby Janssen, Greg Clough, Paul Thewlis

Also watch the whole NRAS Information Webinar series on YouTube.

In the fifth part of this series, Ruby Janssen demonstrates how to use the Onyx NRAS property website at nrasproperty.onyx.net.au to research and reserve your NRAS investment online.

Presenters: Ruby Janssen, Greg Clough, Paul Thewlis

In the fourth part of this series, the Onyx team explain what is ‘affordable housing’ in the NRAS scheme, and what types of dwellings and properties are suitable for NRAS. They also explain the role of Approved Participants in managing the scheme and how Onyx can help you buy an NRAS property.

Presenters: Ruby Janssen, Greg Clough, Paul Thewlis