I have been reading along…on this forum and other forums about NRAS properties. What I' m wondering is… r NRAS properties overpriced in the first place?
All the above information about who will do the loan etc is very helpful but if the NRAS properties are overpriced in the first place, would i just be wasting time and money getting one of these properties?
What do you think?
A lot of them are overpriced. The companies that market them all have different structures to their agreements, which is why some are difficult to finance. Some of these companies have also built in very large commissions for themselves which are passed on to the end buyer and as a consequence valuations come up veryt short. Allocations for the next round of NRAS properties are supposed to come out in the next week or two, so there will be a lot of new ones around soon and not all will be overpriced.
Markymarko, your broker should have known what was acceptable to Suncorp for servicing. I hope this wasn't the same broker you mentioned initially.
Regards
AlistairHey 4jojo
I have been lucky so far my friend. My Bank valuation came up at contract price for my NRAS property which from what I have heard is RARE. As Alister indicates a lot come up short. My fortune may not have been all luck though. I read a lot on NRAS so I went in with eyes wide open. I am just a beginner to property investing so I took the advice of some people I found were knowledgeable.
The general message I followed was to treat NRAS like any other Investment property. Do you homework, know the population growth forcasts , economic drivers and the market you are targeting. Know what price is good for the area, future and existing infustructure and just as important your investment plans. Remember NRAS is designed to be a long term ( as most residential property is) investment as the incentives are spread over 10 years.
I looked for quite a while before I found NRAS that was in a High Capital growth area and was at a reasonable price. The banks valuation was great news for me as it means I didn't overpay especially knowing Banks are valuing very conservatively at the moment. Its just a shame most banks don't account the NRAS incentive when formulating serviceability for a construction loan. I ended up getting an 80% LVR with LMI. Banks are becoming increasingly more NRAS friendly but are far from loose with their lending criteria. Most NRAS will be close to CF neutral or even positive with no money down depending on your taxable income.
As I said I am no expert but glad to share my mistakes and triumphs.
The issues around "over pricing", or "under valuing", are not peculiar to NRAS. It's a consequence of the way most new development investment property is sold- via marketing firms, and valuers subsequent attitudes to that ( whether warranted or not)
Developers pay marketing firms very large fees/commissions to sell their stock, because they want it sold quickly, and real estate agents arent good at moving property quickly. Real Estate commissions are cheaper ( lets say approx 2.5-3%, so approx 10-11K on a 350K property) , but property marketing groups are much more skilled and effective at selling these properties to investors than real estate agents are. However, they demand big fees to do so. ie- 30-40K per property. That's a difference of about 20-30K.
Some developers do not pay fees that are quite that generous They pay around 15K, which is not too different to what a real estate agent would be paid for a sale. But because of the lower fees, marketing groups often wont sell their stock. That's why, when you Google NRAS properties online, you find that most marketing groups sell only some NRAS properties, rather than a wide variety. They are selling the properties where they earn the most. Thats fine, we live in a capitalist country. No issue there, but it does explain why valuers can be cynical and conservative when valuing any property where the contract lists a non brand ( LJ Hooker, Ray White, etc) seller. This has been going on for decades, and particularly in Queensland, where its a part of the investment property selling culture – valuers are very cynical about it. Now that NRAS is getting wings and a lot more stock is coming onto the market , you're seeing the same issues occur. Its nothing new.
Always remember – banks don't value properties- valuers do. Banks have a "panel" of valuers they outsource the work to. The are guided by the valuers report and comments. So when valuers undertake a valuation and see that a property is being sold via a property marketing company, they tend to assume very large marketing fees have been built in to the prices, and value accordingly. That's why valuations of 20-30K below purchase price are common. Its really up to the developers and marketing firms to work with valuers to ensure their prices are understood. If they dont, they will tend to get low valuations, because valuers will always be conservative if in doubt. Remember, its their PI cover and their reputation on the line if the loan goes bad and the bank makes a loss.
So its unfair to say that all NRAS properties are overpriced. SOME NRAS properties, where developers are paying between 30 and 40K marketing fees to their property sellers, may experience valuation issues. And to be honest, a 30-40K fee for selling a 350K property could be argued to be excessive and the valuer is entitled to factor that in to their report.
However, in other cases, where the fee is 15K on a 350K sale, valuers shouldnt really have a significant problem. But remember that these issues would be experienced whether the properties had NRAS allocations attached to them or not. Its an issue with the marketing fees, not NRAS. It all comes down to how big the marketing fees are, and how closely the developers work with valuers before selling properties, to explain how their prices were set. You cant blame a valuer for assuming every property sold by a marketing company has 30-40K loaded to the price. If developers and sellers arent educating valuers about how they arrive at their prices, a valuer is entitled to make assumptions based on decades of previous experience.After all, for brand new property there's always a bit of a premium, and valuers will always be ultra conservative because the property hasnt been bought and sold previously, and comparable sales will often be very limited because the properties are usually in brand new areas. So when they also believe a further 30-40K has been added to the price, no one should be surpised when valuations dont come back on price…..
The moral of the story is that a valuation that is 2 or 3 or 4% below purchase price is quite normal, and no real cause for concern. Realists should expect that kind of result. But any time there's a valuation more than 5 or 6% below contract price- I'd start to ask questions.
Euro 73 – i love your posts! it’s always a fun educated read
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
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