Defence Housing Investment Properties

By FutureNestEgg | June 11, 2008

Defence Housing Authority (DHA) is responsible for arranging accommodation for all the defence personnel and their families. New properties are acquired, sold to investors on the agreement that it should be leased back to them for certain number of years. There are advantages and disadvantages of these property investments and in this post I will be analysing this investment vehicle…

Advantages Of Defence Housing Property Investments

The property you buy will have to be leased back to Defence for anywhere between 3 to 12 years. The long term lease gives you the peace of mind. You will receive rent for the entire period of the lease (does not matter whether its occupied or not).

The DHA maintains and manages your property. You pay them around 16% maintenance fee every month. They take care of all repairs except structural defects and warranty repairs.

When the lease expires, DHA usually leaves the property in a good condition. They even re-paint and re-carpet properties (depends on your agreement with them – so check that).

Defence Housing is hassle free, low risk investments (low risk because you get constant rent..capital growth risk still exists). This property is ideal for some one who wants to buy and forget about their property… A lot of overseas investors and property syndicates prefer these types of properties. Some investors when they buy interstate, don’t look at the properties they invest in…They have to place their trust in the hands of agents, lawyers, building inspectors etc….

I myself have never seen any of my interstate properties. And I am fine with that…But some people are not comfortable with this – For them these investments provide a good alternative…DHA is a government department and so it is as safe as it gets…You would feel quite safe if you buy them even without seeing the property.

Disadvantages Of Defence Housing Property Investments

The lease is quite long term…In a non defence property the usual lease term is between 12 months to 15 months. Every year the property is reviewed by independent market valuers and the rent is raised accordingly…But for some defence properties the rent increase is in accordance with the inflation rate. It all depends on the agreement you have with DHA…So find out what your rent increase is going to be. Increasing in accordance with inflation is not good during low-inflation periods.

If you plan to sell your property before the lease ends, you can do so…But you need to sell it someone who will lease it back to DHA. It can sometimes be hard to find such buyers.

If you put the property in the market for sale, all the property inspections have to be co-ordinated with DHA.
You have absolutely no control over the property during the lease term. For example – assume that you don’t want any pets in your house, you have no choice…DHA controls everything.

The purchase price of these properties are usually more than the average house prices in that area – DHA believes that these properties are hassle free and low risk and hence the high price is justified.

The management fees are quite high – between 16% and 17%. That is almost double the fees charged by managers of regular properties (between 7% and 9%). The argument for it being so high is that it covers all the maintenance costs – but on the counter side you argue say that subtracting so much every month for maintenance that might not happen every month is quite steep.

One of the big advantages of these properties is that it gives you a zero vacancy rate property – but in the current market conditions where the vacancy rates are so low, I wonder if it is still such a big advantage.

Before you buy one these, do your research, find out what the other properties are selling for (in that area) and make sure you fully understand all the terms involved.