Defence Housing Australia’s (DHA) property investment program is not for everyone and investors have varying opinions. Positive and negative stories circulate – but the key to knowing if an investment is the right one for you is to know what is actually involved in the product.
What is DHA?
DHA is one of Australia’s most successful Government Business Enterprises that provides housing and related services to members of the Australian Defence Force and their families. It funds the provision of houses through its property investment program, giving investors the opportunity to buy individual properties and lease it back.
The process involves DHA building or acquiring a property and then selling it to an investor, at market value. The investor then leases the property back to DHA for between nine and 12 years, with options for extension, all the while being paid market rent. Properties with a DHA lease in place have become exceedingly popular, so much so that prospective buyers are required to go through a ballot system just to secure a property. The scheme has been self-funded since 1988 and is very profitable, generating revenues of more than $1 billion per annum.
What are the pros?
One of the major draw cards that entices investors towards a DHA property is the concept of a ‘worry free investment’. A DHA property is a ‘passive investment’, meaning investors are buying into a long-term product that requires little management responsibility by the investor. Tenancy, routine maintenance and day-to-day management of the property are taken care of as part of the DHA Property Care service. Also included is a lease-end restoration, which ensures that the property is returned in good order. This includes internal painting for properties leased for more than six years as well as carpeting and external painting for those leased for nine years or longer.
However, the major appeal with this investment type is the lack of vacancy risk. Regardless of whether your property is tenanted, DHA will cover your rent. So with vacancy being the leading concern for property investors those of a risk-adverse nature should look into this option.
What are the cons?
Unfortunately, all the extra ‘peace of mind’ that comes with a DHA property—guaranteed rent, long-term lease, property care and maintenance—also comes with a price. The management fee at 16.5 per cent is higher than that on a normal property which is around 8 per cent (but then you also have to factor in all the other costs that are covered by DHA as part of its management fee) and all homes are sold with a leaseback clause so this is not a short-term money spinner. You can sell your property mid-lease, but your possible sellers are limited given the house must be sold with the lease intact. Although, it does seem that DHA has access to a number of prospective buyers looking to purchase mid-lease too.
Finally, geographically, you are limited to where you can buy a property. DHA investment properties are geographically diverse, near to Defence bases in all states and territories across the country. But if you have your heart set on a particular area then there is no guarantee that a DHA property will be available in that location.
Maybe it is for you, maybe it isn’t … that’s a decision that you as an investor must make for yourself. If you want a long-term, low risk, passive investment than DHA might be the way to go. If you prefer a short-term investment, with a lower management fee, you are happy to manage the maintenance yourself and you want to invest in a selected location, then DHA is probably not your best bet. As with any investment do your homework – and then the dividends will pay off.
You can find more information at dha.gov.au/investing
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