NRAS

Yeah I put a pretty thorough missile through this article many times already. It's choc full of factual inaccuracies. Everything from income levels to CPI increases... he got just about everything wrong

 

It was discontinued after Rounds 1,2,3 and 4. ( @38,500 incentives) Round 5 ( @11,500 incentives) was abolished. The 38,500 incentives from R1,2,3 and 4 are fully funded in forward estimates. ie Locked in for 10 years of funding.

Interesting to hear Morrison talking about housing affordability at a developer lunch yesterday - talking up NSW AHSEPP as a fantastic solution to housing supply and affordability. For those who dont know, NSW State Environmental Planning Permit ( Affordable Housing) 2009 - commonly called AHSEPP , is NSW Govt legislation which allows developers to build extra FSR ( floor space ratio) in exchange for offering the extra stock back for use as affordable housing for 10 years at a 20% discount. Unfortunately Morrison made it sound like something new and innovative and game changing, but its been around since 2009 and has not been embraced by developers for the most part, because the political and commercial worlds don't see it the same way.

The State sees it like this... it expects the developers will be so happy being allowed to build 20,30% extra stock, that they will retain it rather than try to sell it. This is not legislated, mind you.. it is just what the State expects...

The developers see it differently - they see it as unrealised profit, and they want to sell it. Trouble is...they cannot sell it to Owner occupiers for 10 years. Thats not such a big deal though, as investors are plentiful... but investors wont buy it either, because it has to be rented out for 20% discount for 10 years... and they get ZERO tax benefit for it. Remember, its AHSEPP, not NRAS. They may share the same 20% / 10 year thing, but AHSEPP offers developers extra FSR, it does not offer investors any compensation at all

This leaves developers with 2 choices; hold the stock for 10 years until the 20/10 restriction comes off, or sell at a huge discount to compensate the investor for the 20% reduced yiled x 10 years.... so in the end, AHSEPP is no solution at all. And thats why Morrison already knows its not going to solve anything at all. developers will have told him. 7 years of NSW experience will have told him. His years as minister for Social Services will have told him.

Now.... AHSEPP + NRAS = very different kettle of fish. The state gets what it wants. ie extra stock built specifically to be used as affordable housing, and developers will actually embrace it and build it because the NRAS makes the stock appealing/saleable. The 20/10 rule is automatically satisfied for BOTH programs simultaneously....

Problem is, the Libs killed off any future NRAS incentives at the 2014 budget. In spite of the fact their own Liberal Party Senate Economic Committee white paper into Housing Affordability in 2015, recommended reintroducing round 5 of NRAS and expanding it in the years beyond 2016....

So on the same day he blames the states for failure to deliver affordable housing, and talks up AHSEPP as a solution, he knows damn well it will not work and has a white paper in his top drawer gathering dust to tell him that NRAS will...

So no, the removal or discontinuation of NRAS isnt about cost - it costs Govt very very very little at all - see Bond University's detailed paper to treasury in 2014 attached. After accounting for the GST and stamp duty revenues, and taxes from the flow on effects of the employment created for builders, tarades, suppliers, banks, lawyers etc....Bond University showed the cost to Govt was tiny. It's just all about politics. Simple as that. The Libs just cant let any Labor idea have any air. When their own economic committee tells you its a winner, and they ignore it, it can only be politics.

 

Well, that is a good thing

I listened to the speech too.

I was thinking, this is all window dressing.

What do we really expect, we have no Donald Trump, no one can speak out of turn, you can't even get to that level without many years of towing the line. There is nothing they can do, apart from collapse the market, or try and get economy going, but as you and others have said, they will do nothing but bicker over small things and no large projects will get going and really pushed forward at any great pace.

 

I'm afraid we have had successive years of incompetence from both sides, going back the best part of a decade. Morrison has been an enormous flop in this role.

 

What can he do though ? What can any of them do ?

Unless the status quo is broken, or a strong leader that gets popular following comes along it will just all go on as usual.

The root of the problem is self preservation, maybe not so much for power, for the money or that combo.

 

Here is the paper I referred to.

 

Administration of the National Rental Affordability Scheme | Australian National Audit Office

Report gives some background about the scheme, but focuses more on the administration of the scheme than the scheme itself. May provide some insight if you're up for a read.

 

Scott Morrison should look at the US scheme that trumps Australia on affordable housing

 

So what are the mechanics of the US scheme? It doesn't really give specific numbers for the tax breaks.

 

It doesnt matter. NRAS is $11,048 this year

 

Disappointing news. I'd be really interested in an NRAS investment, but prob not until 2018/19.

Maybe the powers that be can 'rediscover' it - soon!

 

Per property, irrelevant of the value of the property? and then indexed further years after this?

And if buying a 2nd hand NRAS that is say 2 years old, there is still 8 years of eligible benefit available?

And then you can claim your usual depreciation on this? And standard neg gearing on top?

In exchange you take 20% less rent than "market" rent? How is market rent calculated?

 

Yes yes yes yes yes yes don't know

 

Year 1. Licensed valuer completes market rental valuation. 20% is reduced from that figure
Year 2. Rent is increased - indexed to Rental CPI
Year 3. Rent is increased - indexed to Rental CPI
Year 4. Licensed valuer completes market rental valuation. 20% is reduced from that figure
Year 5. Rent is increased - indexed to Rental CPI
Year 6. Rent is increased - indexed to Rental CPI
Year 7. Licensed valuer completes market rental valuation. 20% is reduced from that figure
Year 8. Rent is increased - indexed to Rental CPI
Year 9. Rent is increased - indexed to Rental CPI
Year 10 Rent is increased - indexed to Rental CPI
Year 11 Market rent is restored

 

All...I have done the numbers..I am a numbers guy and let me tell you you need to look at NRAS not only from a CF but also for a future gain perspective.

From where I sit over 95% of NRAS is front loaded (i.e. overpriced) ....you have to look at the fore grown capital gain vs cash flow to get a true understanding of how solid an investment it is.

Not a lot of people on this forum can work that out...

 

I have debunked your negativity around NRAS so many times , it's getting a little silly that you keep sticking your head up to have it whacked again. Its becoming a little tiring having to take the unsubstantiated, unqualified , unsupported , unproven arguments you post and disprove them piece by piece.

But because I enjoy debunking myths, I will say it one more time - you are looking in all the wrong places. I have consistently delivered NRAS on projects that have delivered stellar capital growth as well as stellar cash flow. Just because it doesnt fit with your cheap and cheerful house land strategy doesn't mean it doesn't work. I have posted detailed examples of these deals, more than once. That means I continue to present qualified, proven facts while you continue to present unqualified, unproven opinions.

But that's not really the point. The point is actually this; every fibre of your being believes that a growth only strategy is the way to move forward. This is understandable, because just about every part of your portfolio was acquired when that approach was accommodated by a credit environment that made cash flow management a fairly unimportant requirement. And your philosphy is only further biased by your personal accommodation circumstances and income circumstance. So that makes you an ALPHA . A King of the mountain. But achieved from a position of super easy credit and high income.

On my side, every fibre of my being views portfolio building from the perspective of readers of this forum who are starting out, and on more modest incomes.. ie people who wish to be ALPHA's, but arent... and who are now operating in a much more challenging environment than you were ever asked to. And often with partners and dependents and very high household expenses. And because of this, I place the importance of cash flow much higher up the food chain than you do...because I am seeing it from the street and you are seeing it from the mountain top...

What you seem to have trouble working out or accepting or seeing value in, is the value of debt reduction. Being able to reduce a PPOR loan term from 30 years to 10 years, and the compounding benefits and opportunities that creates, is huge. The saved interest alone represents a fortune. But the real pay off is the improved borrowing capacity created by tghe removal of that "dead" debt. For all your talk of growth, I have asked you at least a dozen times over the past couple of years to explain to readers how capital growth alone will improve their borrowing capacity , and all I ever get back is jibberish.

And as exhibit A, so that I may rest my case - I present you with my portfolio, which is bustling with NRAS approved properties , many of which have appreciated over 30% - 40% since purchase 2 years ago, and which deliver me an average of 10k CF+ per annum each, and have allowed me to reach the NET income levels you claim to have taken 16 years to reach, in less than 4 years.

Now you can place any spin on it you like to try and deflect and divert in order to avoid conceding the argument , but if I have reached your net income position in 1/4 of the time it took you, and with only half the number of properties it took you, shouldn't you be reconsidering whether my NRAS kung fu might just be a little stronger than your anti NRAS kung fu mind accepts?

 

I thought it was jujitsu v kung fu

I am not sure if it has been written before, but is the Govt payment counted by all lenders on the same level as PAYG income, or is it lumped into rental earnings?

 

Firstmac and Adelaide Bank used to accept it as income for servicing, pre APRA... to 80% LVR. They both took it as "untaxed allowable income".... so it was far better than adding it to rent or to PAYG income. It was treated as 100% tax free, just like FTB is. Potent . Not any more.

 

Not only nras either

 

Just wanted to share a 'thank fork for NRAS' moment with you.
Perth is not travelling to well in the rental or sales markets - it's well documented. It's not all doom and gloom everywhere but it's not really the time to sell if you can hold and holding is not so pleasant at the moment with high vacancy rates.
A client of mine completed their duplex project in Clarkson and was able to get 2 x 'used' NRAS allocations. They only had 3yrs left on them - not a long time but long enough to hopefully see through a rough patch in Perth.
They cost $3000 ($1000 per year left) and will have the approx $11k NRAS incentive as per usual. The market rent was valued at $350pw and advertised at $280pw and had tenants move in within 2 weeks of being available. The quick rental was a great bonus
As a comparison there was another client project that completed 3mths earlier down the street and is a standard rental and took more than 7 weeks to rent out at $350pw (started at $400pw and reduced until a tenant was found)
What does NRAS give in this instance? $3640 less rental income topped back up by the $11048 incentive = $7408 softener in this crap market. You can choose to look at that like receiving $142pw extra rent or $422 pw rent which is an awesome yield on this project - approx 6% which is not common at all in Perth.
That doesn't even take into account other tax factors.