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Investing in Affordable Housing

In these uncertain times in Property Markets, history has shown if we look a bit outside the box we can overcome hiccups in the long term use of property

One such strategy may be “Affordable Housing”

What is Affordable Rental Housing?

The State Environmental Planning Policy (Affordable Rental Housing) 2009, or AHSEPP, was introduced on 31 July 2009 to encourage the development of new affordable rental housing.

Affordable housing is housing that is appropriate for the needs of a range of  low to moderate income households.

Housing is usually considered affordable if it costs less than 30 percent of gross household income. It may include a range of housing types and sizes, is only available in some locations and eligibility criteria apply. Properties must remain as Affordable Housing for a period of 10 years.

How is affordable housing different to social housing?

Affordable housing is not the same as social housing.

Affordable housing is open to a broader range of household incomes than social housing, so households can earn higher levels of income and still be eligible

Affordable housing is managed more like a private rental property

How is eligibility for affordable housing determined?

Initial eligibility for affordable housing mostly depends on household income, which must be within limits set by the NSW and/or Commonwealth Governments. The more people, including children, living in a household, the higher the household income is allowed to be.

How is Rent Calculated? 

The maximum rent is usually 30% of market rent with a maximum allowable of $520 per week

Who can manage Affordable Housing properties?

Affordable housing properties must be managed by a Registered Community Housing Provider for a period of 10 years from the date of completion.

Can I sell the property during the 10 year period?

Yes, however the property will remain as affordable housing for the balance of 10 years from when originally purchased.

What happens after the 10 year period?

The affordable criteria ceases and the rents can be increased to market value or the property can be used by the principle as their primary residence.

How do I obtain Finance? 

As there is a Covenant on title not all Lenders will accept the security property. If you are intending to use this strategy I caution against purchasing off plan and only purchase a completed property obtaining finance approval prior to exchanging. There are Lenders who will lend today to both individuals and SMSFs

Case Study

 The following is based on an actual property currently for sale

2 Bedroom Unit Selling for $665,000 in Caringbah

Similar unit sold in development for $725,000

Current gross yield on Affordable Unit is 5%. This is comparable to most “traditional units if not higher)

The property is new so additional benefits in the form of Depreciation also applies

The strategy is to hold the property for 10 years at which time it will revert to a traditional apartment which can be sold to owner occupiers at a market rental with the intention of picking up a capital gain. There may be additional tax benefits if structured through an SMSF

If you are interested in exploring this option please contact us.

SMSF Lending – An Interesting Case Study

Westpac Banking Group released a Statement recently to advise that they are pulling out of all Self-Managed Superannuation Fund Lending as at 31 July 2018.

This move marks a point where all 4 Big Banks & their Subsidiaries have exited this market except for a very limited offering by Commonwealth Bank for Extremely High Net Worth Borrowers.

This decision has come about for Westpac and Other Financial Institutions due to ongoing increased Lending Standards and Tightening of Affordability Assessment of Lending brought about by the increased intervention of ASIC & APRA into the Banking system.

The cost of increased Capital Adequacy requirements for SMSF Non-Recourse Loans, insisted upon by APRA, has driven this trend. An ongoing Royal Commission into Banking has also assisted in their decision making

We, at the MASU Group are still, at this point in time, able to supply access to the limited range of non-bank SMSF Lenders in the market and recently needed to utilise our experience to access funds from one of our  suppliers with the following situation.

A Loan Application had been lodged with a Major Bank two months before settlement with the Banker assuring us that Approval would be forthcoming. A decline from the Bank due to the deal now not fitting their new servicing guidelines two days before the due date of settlement could have been disastrous for our clients.

Looking at our non-bank lenders we found one who had only the previous week upgraded their SMSF offering and also reduced rates to lower than the major bank’s original offer.

Loan fees for this particular product were only slightly higher than the Bank but this is more than offset by the lower interest rates on offer. Loan documents were  executed and settlement took place avoiding the possible loss of the client’s 10% deposit for failure to Settle the Purchase.

MASU Finance & Mortgages has been dealing in the Self-Managed Superannuation Fund Loan market for close to 20 years and is well experienced in this sector to be able to assist you in your current and future SMSF Loan scenarios obviously with current financial institutions credit policies in mind.

Should you wish todiscuss not only your Self-Managed Superannuation but also your Personal Residential, Commercial and Asset & Equipment Financing needs please contact either myself or our Finance Manager, Michael Taylor on 0413 623 614