NSW Selling a Brand New Affordable Housing Dwelling

Discussion in 'Property Analysis' started by Charch, 17th Mar, 2022.

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  1. Charch

    Charch Well-Known Member

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    Hi All,

    We are thinking of building a duplex under the affordable housing scheme and selling the "affordable housing side" on completion.

    As the requirement is to be rented below 20% market value for 10 years, my question is how much should the market discount be (if any) if we were to sell the dwelling?

    I.e: Should we also be selling it 20% less than market value to compensate for the 10 year rental loss?

    How would agents normally appraise the sale especially if there has been no historical sales in the area?

    Hope that makes sense and all thoughts and opinions are appreciated.
     
  2. ParraEels

    ParraEels Well-Known Member

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    Not many buyers for affordable units. Generally builder keep affordable units for 10 years. Instead of taking profit in cash they keep affordable units.

    Duplex rent $50,000 - 20% discount = $100,000 x 10 years = $100,000 rental loss

    Management cost is also higher as you have to list it through community housing providers ie hume housing, st George community housing etc.

    Buyer's bank may have issues as rental yield will be lower which may reduce their borrowing capacity.
     
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  3. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    What Affordable Housing Scheme is still available in your state? Is there a tax incentive or govt rebate like the NRAS scheme to offset the rental discount?
     
  4. ParraEels

    ParraEels Well-Known Member

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    In nsw, extra FSR to construct more so your yield increases
     
  5. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Ah so it's a density uplift policy. That does make it tricky to value as they are passing on the burden to the new owner.
    Do both sides of the duplex need to be rented out to qualify or just one?
     
  6. ParraEels

    ParraEels Well-Known Member

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    No only one (50%),

    FSR can increase minimum 20% to maximum 50%. It generally work better with townhouses or RFB development.

    Builder will get a 20% fsr increase and 20% of development dedicated toward affordable housing. If 30% FSR increased than 30% units kept affordable.

    Builder gets extra yield and government get stock of affordable units for 10 years.

    With this duplex site it will be 50%.
     
    Last edited: 18th Mar, 2022
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  7. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Thanks for the explanation - we don't have anything like that here.
    That does make it tricky for the OP. Presumably they have been able to turn a single dwelling block into a duplex block which brings it's own profits to the OP. How much of those profits do they need to give up to realise a sale on the second house.

    Perhaps OP can look at a reverse yield calculation to get some guidance. Where if you know a ratio or relationship of yield to value ie a $500k property generally rents for $500pw therefore a 20% drop on the $500pw to $400pw might make it therefore a $400k property? Only works if a relationship can be found.

    It would be easier if they just sell the one not in affordable housing and keep the affordable one in their own portfolio for 10yrs.
     
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  8. Charch

    Charch Well-Known Member

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    You are correct the advantage for us is that we would be able to develop a dual occupancy where before it wouldn't be permitted under the normal scheme. Advantages also you can get almost up to a 1:1 f.s.r. which obviously is not possible, but we are able to achieve a 70% fsr, which would hopefully compensate also for the affordable housing caveat for 10 years.

    We would intend to live in the non-affordable housing side and just pay out all our debts with the sale proceeds the affordable housing side.

    I believe there are also tax benefits where you can claim the 20% reduction as a tax deduction as well and when you go to sell you get a 60% capital gains discount instead of 50%.

     

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