After testing the market with a small-scale affordable housing development in Sydney, property advisory group Development Finance Partners (DFP) is tapping investors for $5 million for a further three, small-scale developments.
According to DFP principal Baxter Gamble, there is a significant appetite among many investors, in particular the trustees of self managed super funds, looking for low-risk, quick turnaround projects that deliver yield.
“Our first foray into the affordable housing market was the development of a small eight townhouse project in Kirrawee, Sydney,” Baxter said.
“DFP sourced finance and took equity in the development.
“Its success and the fact that it reflects the core of our group’s social values prompted our involvement in a further two projects.
“For each project or group of projects, we seek discrete investment and to date, three projects have been fully subscribed.”
In southern Sydney, a seven townhouse project has been completed and sold in the suburb of Kirrawee.
In neighbouring Miranda, DFP has two projects—one features eight townhomes and is under construction and with five pre-sales, and another, also with eight properties, has development approval.
“In total, our first three projects feature 23 townhouses with six allocated for affordable rent or purchase.
“We are now looking to raise $5 million for a further three projects. The minimum investment is $50,000.”
DFP has opted for small-scale developments as they offer investors:
A shorter time frame for returns—about two years
An attractive 12 per cent return and potential profit share
Cost certainty which is generally assured in small-scale projects .
For purchasers and affordable rent tenants, the attractions are:
Location: sites must be within a reasonable distance of a business district
The quality of accommodation: townhouses are highly appealing
The right price point .
Despite its success to date, DFP holds to the view that although there is potential for affordable housing to become a mainstream property class in Australia, many tax, financial and regulatory hurdles must be overcome in order for this to occur.
“We assert that Australia presents a unique set of hurdles that keeps institutional investors away from the local market.”
“Australia’s rigid banking sector, stringent tax laws and an inflexible financial system that lacks innovation all combine to ensure that affordable housing on a large scale will not thrive in this country without significant changes. ”
In the meantime, we focus on small-scale developments that minimise risk, offer an attractive return for investors and assist in the goal of improved social cohesion.
“We realise that our involvement makes only a small dent in badly needed affordable housing, but it is surely worthwhile to enable well-located accommodation for workers in industries on which we all rely.”
DFP is currently presenting its investment case to accounting firms and investment advisers in three states—New South Wales, Victoria and Queensland.
“Few of the people to whom we present are informed about the investment potential in affordable housing and there is some initial reluctance to recommend investment to clients as property development is viewed as moderate to high risk.
“But, demonstrably, the demand for affordable housing is there and the business case stacks up well in an era of exceptionally low interest rates.”
For more information on Affordable Housing Investment opportunities visit the DFP Funds Management website.
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