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06 August 2008

Defence Housing - Is it good for you?

At Morpheus Property, we often get asked about Defence Housing and the pros and cons.

DHA stock is well publicised and appear attractive to many investors. This may be the case, but do your sums first.

The advantages of DHA properties are mostly to do with security:
  • DHA offer a long-term commitment to the repayments on the investment property (whether occupied or not).
  • DHA ensure the cosmetic condition of the property is maintained and offer some restoration services on completion of the lease term. However, this does not include structural, fencing, etc.
  • DHA guarantee the rental payments won't go down in value.

The trade-offs mostly relate to performance and control.
  • Sale prices are not negotiable.
  • Rental return is reviewed by a valuer appointed by DHA. Investors are bound to accept any rental adjustments based on this process.
  • Property management fees for houses are fixed at 16.5%, or slightly less for units / townhouses (this does not include anything extraordinary, such as rates, body corporate, etc). This is also not negotiable and you cannot use a different property manager or self-manage the property.
  • DHA determine the terms and conditions of the lease (again, this is not a negotiable process) and are usually 9 + 3, or 12 + 3 years. This gives the Australian Defence Force the flexibility to meet their changing operational needs. DHA may alter lease periods (within certain boundaries) or even terminate early.
  • Having a long-term lease means the property must be sold with the existing tenancy arrangement. If neighbouring house prices increase and rental returns outstrip the DHA property, this may make it difficult to sell.
  • Investors are limited to when they can inspect their dwellings - maximum of once a year.

All investments exist on a spectrum of 'risk' v 'return' - you could invest your money by leaving it in your bank account (low risk, low return) or place a bet at the races on a horse 100:1 (high risk, high return). The property market has a similar spectrum of risk and return. Broadly speaking, DHA investments are likely to suit people who are very risk averse and not seeking rapid portfolio growth.

Yours in property!

1 comment:

junaid said...

Great article! This contains some factual elements regarding buying a property in defense housing society. I wish to have a property in DHA or Bahria town Islamabad but it seems to be much expensive. Thanks for sharing!