Minh Le: 0:06

Hi, welcome to NDIS Property Australia's latest podcast. My name is Minh and I'm here with a special guest speaker, Rob Maxwell from Plan4Life Australia. Welcome, Rob.

Rob Maxwell: 0:17

Thanks, Minh. Happy to be here.

Minh Le: 0:18

Rob, tell me more about you. What's What's your story here in Melbourne?

Rob Maxwell: 0:21

I am the director of Plan4Life Australia, we're a short term and medium term accommodation provider for NDIS participants predominantly looking at country locations such as Albury and Wodonga, so that the participants can take anywhere from two days to a week away and a holiday for a short term accommodation. So we will be helping them with that.

Minh Le: 0:45

Wonderful. Rob, so tell us more, our audience more about the SDA market in Melbourne, at the moment with regards to various issues like builder challenges who want to go and do NDIS or land supply and supply chain issues and, and product mixes as well. What's your feedback on the overall on the overall SDA market with all these topics here?

Rob Maxwell: 1:10

In terms of house and land builds Melbourne is probably a little bit behind Queensland and New South Wales in terms of where they're at with building these types of properties and the builders that are actually involved in the segment. I've been dealing with builders for the last two years. And pretty much in every case, the builders start off showing an interest in developing a business in building NDIS properties, they then do the work but because it's not their core business, they use it as building traditional houses. This is obviously a lot more complicated as you and your audience know in terms of what they have to do and have to get everything assessed and approved. And because of the situation in the world, financially builders obviously are under a little bit of pressure over the last 12 or 18 months, costs have exploded in terms of builds, they've got supply chain issues, they've got staffing issues, the cost of slabs, is increasing enormously. So most of the builders in Melbourne that have looked at this sector have decided over the last 12 months not to pursue it or they put it on hold. Therefore there have been very few houses built; apartments a little bit different, it's probably a little bit more advanced. But it is a big opportunity. And now a couple of the bigger builders are getting involved in the sector that they're more comfortable that going forward it will be profitable for them.

Minh Le: 2:36

Wow, wonderful. So with your background in the construction industry the last few years, how has prices have prices fluctuated or gone up the last year or so since the pandemic began with COVID?

Rob Maxwell: 2:50

With with a traditional house build price, I'd say prices in Melbourne would have gone up 20 to 30%. Predominantly in areas such as the timber frames, whether or steel frames, the concrete slabs, waffle pods, everything is going up significantly in price. So a lot of the builders that have signed fixed price contracts as they do with with what we're dealing here with the NDIS properties have got themselves into a little bit of a cashflow squeeze going forward because they've committed to prices that now probably another 20, 30, $40,000 to build. But I think they're getting on top of that now and they're more comfortable going forward to be able to offer these products.

Minh Le: 3:36

Is there going to be much of easing of the land supply pipeline coming out for the next year or two years?

Rob Maxwell: 3:43

There is a decent amount of land available not necessarily new estates, they're going very quickly, because there's still enormous demand for new land and selling still really quickly. But there is a lot of land on the secondary markets that you can get in new estates pretty much all across Melbourne, Geelong, Ballarat region. You're probably looking on average if you're looking at a new new block in an estate six to 12 months waiting but there are options as I mentioned, for land to access a lot quicker.

Minh Le: 4:17

Yeah, wonderful. So this just so the audience can can be more aware this morning Rob and myself went to a large firm in Melbourne City to talk about the benefits the pros and cons of considering SDA as a investment option for their property clients. It was good to be at for us to be able to talk to professionals who are in the property and finance game to understand more about the NDIS market overall and the SDA specifically. Rob what's what's the what's your assessment with regards to the demand or the categories that are in most sought after by investors at the moment in the Victorian market at the moment?

Rob Maxwell: 4:59

Okay, compared to the rest of Australia, there's currently more demand in fully accessible and robust, particularly robust. Very few houses being built in that sector and there are a lot of participants now looking for housing that they cannot find. So there's definite demand there. Also fully accessible-

Minh Le: 5:17

So we're talking demand not so not delivery or supply. Right?

Rob Maxwell: 5:21

That's the demand side. Yes.

Minh Le: 5:24

What's being supplied in the marketplace right now?

Rob Maxwell: 5:26

Okay, in terms of what's being supplied, high physical is roughly about 55% of the overall market.

Minh Le: 5:35

In Victoria?

Rob Maxwell: 5:36

In Victoria, yep, compared to about 65-70% Australia wide. So a little bit lower. Robust, is actually fractionally higher. But as I mentioned, the demands there, hence why it's a good category to look to build. Fully accessible also is up near 20% versus roughly 10% Australia wide, and improved livability is pretty much similar to about 8% in Victoria compared to Australia.

Minh Le: 5:58

So Rob, we're from Brisbane, and we we work with a lot of different providers and builders, all around Australia. What we've noticed in Melbourne is there seems to be a lot of investors and product suppliers, by way of head lease, lease rent guarantees head leases, you know, the 8% on the products out there, it's kind of strange to see that only in Melbourne and nowhere else. Rob, what's your opinion about these these head leases at 8% that tends to be, a lot of investors be hooked into and, you know, for you is the is the greatest thing in the world? What What's your opinion on that product?

Rob Maxwell: 6:42

Well, builders and developers are offering the 8% because Victoria may be a little bit more conservative than other, other parts of Australia and an 8% return is still very attractive in this sector, to guarantee tenants. However, as we know, if the investor takes the chance to engage us or find tenants themselves and not sign these head leases, then they're going to end up with a better return than that probably closer to 10%.

Minh Le: 7:13

But there's a little catch there, Rob, that is these 8% head leases, given by SILs and other housing providers in Victoria, have a catch. Do you know what the catch is?

Rob Maxwell: 7:26

That it's not guaranteed or?

Minh Le: 7:28

Well, there is no CPI for 20 years. That's the first one.

Rob Maxwell: 7:32

That is a huge difference over 20 years, that's that's that's halfing your return towards the back end.

Minh Le: 7:38

And the other catch is, the 8% is only up to a maximum price of 600 grand, even though it's been $900,000 on the purchase price. So it's not 8% on the purchase price, it's 8% to a maximum of 600 grand.

Rob Maxwell: 7:54

Okay, so you're talking five to 6%. In reality, then in Melbourne, you're looking at eight to 900,000 for a house and land package in the sector.

Minh Le: 8:02

So if all you get is 48 grand as our head lease with no CPI on a purchase price of eight, 900 to a million dollars. That's around about 4% yield for a SDA investment. Now-

Rob Maxwell: 8:17

That's very attractive for a builder and a developer, though therefore, very profitable business for them.

Minh Le: 8:23

But why would not, why would it not be attractive to an investor this 5% return for 20 years at no CPI?

Rob Maxwell: 8:31

Because they can get 10% index to CPI which in 15 years time will actually be closer to 20%. So there actually is a huge difference when you work out the figures over time.

Minh Le: 8:43

So to all you all you listeners out there who are blinded by this awesome 8% head lease, be careful watch out for the terms and conditions, because it may not be as great when you do it the real numbers I guess. Yeah. So Rob, tell us more about supply chain issues with, around the world and with the market and and will things get better for the SDA property investors who want to jump into SDA property investment?

Rob Maxwell: 9:13

Well, now that COVID seems to be – touchwood – improving worldwide, you'd think that the supply chain bottlenecks that have occurred over the last 18 months will gradually ease maybe not for another three or six months. I think the general view amongst builders is that prices will continue to stay high for that timeframe. But maybe we'll have a little bit of easing in six to 12 months time of the pricing, which will make it easier for everybody.

Minh Le: 9:43

Okay, wonderful. Next topic is areas around Melbourne or Victoria. I mean, you've been here for how long have you been living in Melbourne yourself for?

Rob Maxwell: 9:53

My entire life.

Minh Le: 9:54

Your entire life?

Rob Maxwell: 9:55

I won't tell you exactly how long it is but as you know, it's it's 50 odd years.

Minh Le: 9:59

So what are the hot spots, do you think, for demand of SDA participants, in your opinion for Melbourne? Melbourne, Victoria, yeah.

Rob Maxwell: 10:12

Yeah, well, there's a few specific areas that seem to have significant demand and not a lot of supply. The south east of Melbourne, which is a major growth area for all sorts of property, and you're probably looking at about 900,000 to build one of these properties in that area that's got enormous demand, all the way down to Clyde and Berikan, all the way down to Warragul into Gippsland. That is a definite area for investors to look at. Then on the other side of town in the mid Northwest, so around your Tullamarine, Greenvale and a bit further out. There's also another pocket where there's significant demand for these properties and very little supply there. The west of Melbourne has always got increasing demand because it's such a growth corridor. So there's always going to be plenty of people with disabilities looking for properties around the Wyndham Vale, Werribee, Lara area and the one that also has got very little supply currently may change, but significant demand is also the Geelong greater area, all the way down to Armstrong Creek. So there's probably four or five areas in the in the outskirts of Melbourne, where it's affordable, all growth areas where these properties are desirable.

Minh Le: 11:31

So just for the benefit of our listeners on the podcast, do you not think would an investor think Geelong, Ballarat, Bendigo is a bit too far as an investment property for NDIS, for SDA do you think?

Rob Maxwell: 11:46

No, or as you know, with COVID, and with the lifestyle changes, and people aren't necessarily going into the office in the city every day of the week, it's actually become a very good investment option, full stop and a lifestyle option to live and invest down in Geelong, Ballarat and Bendigo. So I don't see that changing over the next few years and I think a lot of people with disabilities are quite happy to live down in Geelong near the beach.

Minh Le: 12:13

So what are the population figures for Geelong, Ballarat, Bendigo, per se?

Rob Maxwell: 12:20

I think Ballarat has probably got about 100 to 150,000 people but it's growing enormously the the new estates going up in Ballarat and it's expanding rapidly. Geeolong itself, there's probably about 250,000 people and the growth in Geelong is happening in the in the corridor between Geelong and Torquay all the way down, eventually, that's going to be housing all the way down. Whereas 10 years ago, was a half an hour drive to get from Geelong to Torquay, and there was no housing. Yep. So that entire corridor is going to become housing, and it'll have plenty of infrastructure and amenities suitable for people with disabilities. So it's very likely they're going to be very interested in living down there where it's a slightly more relaxed lifestyle near the beach.

Minh Le: 13:10

Have you been seeing much in the last year or so of institutional investors creating apartment complexes or, or strata title product in the marketplace as compared to house and land? Or should I say, do you what do you think is more the prevalent products coming out to the marketplace, apartments or houses?

Rob Maxwell: 13:33

I think in Victoria, because Victoria, similar to Sydney, or more specifically, Melbourne is a financial capital with big super funds and big developers, that the apartment market was the most attractive for them initially. So Victoria actually, and Melbourne specifically has a high proportion of apartments relative to other types of NDIS homes. So the last two years, that's been the focus in that area. But I think that will change when the demand shifts more towards house and land and maybe townhouses as well. So, yeah Melbourne has got a high proportion of apartments. Yep. Versus other areas of Australia and also more villas and duplexes and townhouses, but less homes than the rest of Australia. But I think that'll that imbalance will will switch back over time.

Minh Le: 14:31

Rob, you mentioned to me the other day one of your friends works for a SIL provider. Yes. And he gets a lot of inquiries himself in his role as Operations Manager with regards to participants with the robust categories as well. What has he told you about the demand of robust participants as example to his to their company that they they operate?

Rob Maxwell: 14:56

He's currently got 30 participants waiting for a home. They can't currently get one, and he would be able to provide, have another two to three participants per week that are contacting him looking for a home. So there's 150 to 200 people in the next 12 months minimum that can't find housing in this sector in the robust homes that need it.

Minh Le: 15:24

Can you explain what a robust home is, and what kind of participants it's designed to house?

Rob Maxwell: 15:32

Robust homes are designed for participants that have mental challenges of some degree, so they might be reformed alcoholics, they might have a drug problem, they might have a violence, domestic violence problem in their history because of mental issues. Therefore, the homes themselves need to be built to a higher level to withstand any potential issues with with physical violence or for instance, they might want to punch a wall or, or or hit a wall. They also because it's they're, they're very sensitive to light and sensory issues and also sound, these homes need to have a level of soundproofing. And the lighting needs to be done in a way that makes it a more peaceful environment. And they also have to have provisions for the carers to be able to easily leave the property if there's a problem. So that they're just a higher level of build in terms of the structure that needs to be a lot more solid than a traditional home, with soundproofing, and also, they've got to minimise the ability for self harm within the home.

Minh Le: 16:54

Is, I think there seems to be a lot of misunderstanding in the marketplace from investors about the robust category. You mentioned that there is high demand, and there's minimal, minimal supply. I mean, how much supply is in the marketplace of SDA at the moment, in Victoria, specifically?

Rob Maxwell: 17:15

There's very little in the robust roughly, 10% of the property is well below the demand. Now the issue that investors have probably had and why they've shied away is for the potential for damage to their properties that could cause financial loss. But there's a very wide spectrum of participants that are in the robust category, a lot, are perfectly fine, reformed alcoholics, reformed drug addicts, who have come from a family that have had those issues, that are just looking to have companions to talk to and go for a walk with it and not violent at all. You can get the extreme that potentially do have violence, but you do have the ability to screen potential tenants, particularly with the situation at the minute where there's a lot of demand and very little supply. So you can be a little bit more choosy with the type of tenant that you're comfortable with.

Minh Le: 18:12

Just to show how much funding goes towards a robust participant. What is the amount, the range of amount the government funds for SIL funding for a robust participant?

Rob Maxwell: 18:25

This actually shocked me when I saw the figures and was told but currently it's it's roughly 1 million to $1.5 million per year of funding per participant. And some of them have got funding for two carers at once. So it's a lot of money. Still cheap relative to what it would cost to house these people in hospitals and nursing homes.

Minh Le: 18:50

Is that two carers 24/7?

Rob Maxwell: 18:52

Can be depending on the on the the level of the robust participant's disability.

Minh Le: 19:00

Wasn't there a year ago, you told me a story about a young, well a participant in robust category who needed five carers. It was a very extreme scenario long time ago. You told me about that.

Rob Maxwell: 19:13

That's quite possible. Yeah. Yeah. I can't remember the specific case. But that could be possible. And that might be at the extreme end. Yep. From a violence violence and potential issue there.

Minh Le: 19:24

It must be pointed out that the robust category design home does also cater for improved livability participants, right?

Rob Maxwell: 19:34

Yes, yes, pretty much everything bar, high physical support and fully accessible.

Minh Le: 19:40

So based on that, what is the participants seeking SDA as per robust versus improved livability there?

Rob Maxwell: 19:50

Improved livability overall, Australia wide as you're aware of, you meantioned in your other podcasts, it's roughly about 70% of the entire participants requiring NDIS homes and there's currently over 900 in the improved livability category, who are seeking housing versus under 200, for robust, so it's four or five times as many. So there's plenty of demand for improved livability as as an option as well.

Minh Le: 20:17

We often tell our clients just because you have or you start thinking about building a robust design home, doesn't mean you have to have robust participants.

Rob Maxwell: 20:27

Even if you could easily put two or three improved livability participants in the home, the rental would be slightly less, but still very attractive, still looking at eight, nine, ten, eleven, 12% per annum.

Minh Le: 20:41

Exactly. And even if you didn't want, if you did not even want to have a SDA participant in the house, you could easily rent it out to a normal, normal mum and dad family.

Rob Maxwell: 20:53

Correct. As a last resort, you can always rent it out to a normal family or even an elderly couple that might have medical issues with walking around with hip replacements that more than happy to have the ramps and everything and the housing is actually is attractive for them as well.

Minh Le: 21:08

So therefore, it begs the question, would a normal family living in a robust home, can they tell it is a robust home?

Rob Maxwell: 21:18

Technically not. No. No, because a lot of it's unseen.

Minh Le: 21:23

Behind the walls.

Rob Maxwell: 21:24

Behind the walls. Yeah. And soundproofing is good for any any family. We all like double brick and got double glazed windows for soundproofing purposes. Yeah.

Minh Le: 21:35

Because a media room of a house essentially is a breakout room, or a sensory room. Yep. Okay, so it's essentially a four bedroom, two bathroom two car with the media media room as a normal house anyway. So the goal of these houses is to is to allow comfort for the participants to live a normal life in the community. Yeah.

Rob Maxwell: 21:57

And you have wider hallways wider doors, which is attractive for anyone for any home. Everyone wants a bigger

Minh Le: 22:02

Exactly. So before we finish up for the for the the hallway. podcast today, Rob, what's, what's the long term view of Victoria in the overall SDA Australian market?

Rob Maxwell: 22:14

I think it's a very good opportunity for investors to build these homes, at least for the next five or 10 years, we can never be sure what's going to happen after that. But of all the areas in Australia, I think it's a very good opportunity. And now we've got builders that are comfortable to pursue the sector. It makes it you know, well worth looking

Minh Le: 22:36

We from NDIS Property Australia's point of view as a into. business, we are very bullish on Victoria and Melbourne. The reason being is the penetration rate of SDA into the market in Melbourne or Victoria sorry, is only 13%. And then our opinion is because of the lack of land supply the last few years the the builders being so focused on first time buyers, the challenges of being a SDA builder itself in Melbourne, you know, builders being builders, the path of least resistance is to build a normal house. So obviously, the the gap between supply and demand is growing by the day. And now that lands coming back to a normality and normal kind of balance in the Melbourne market, I think we're gonna see more opportunities to build SDA homes in Melbourne, no matter what it is improved livability or robust or HPS, and so forth. But one thing you mentioned this morning at the meeting at the office of this other company, you mentioned about the hybrid design home from this, one of these big builders, which we won't mention the name, obviously. But what's so unique about this special hybrid model that we talked about today?

Rob Maxwell: 23:47

This hybrid home, it will be able to cater pretty much for all four categories. It's a combined robust, high physical support approved and assessed category. Therefore you can have a mixture of any of the four in the home. And it's very cost effective. It's only a little bit more expensive than than a high physical or a robust home.

Minh Le: 24:07

Wow.

Rob Maxwell: 24:07

So just gives an investor more option to have more participants in the different categories.

Minh Le: 24:13

But surely, the cost will be massive to having a hybrid, surely?

Rob Maxwell: 24:17

No, we're talking$20,000 roughly.

Minh Le: 24:19

And that's all? Wow, that is amazing. So when would an investor not choose the hybrid model?

Rob Maxwell: 24:27

If their budget doesn't allow them to spend the extra money I would suggest is probably the-

Minh Le: 24:32

The extra, the extra 20 grand?

Rob Maxwell: 24:33

Yeah, correct.

Minh Le: 24:34

So there's that there's no reason to not do it, then?

Rob Maxwell: 24:38

Not really, because you're giving yourself more options down the track for, in terms of rental potential.

Minh Le: 24:45

So just so we're clear, we're talking about a fully accessible, wheelchair friendly house.

Rob Maxwell: 24:51

That's almost, uhm, also robust friendly as well.

Minh Le: 24:54

So robust, improved livability, HPS, fully accessible. But at the same price, effectively.

Rob Maxwell: 25:03

For an extra$20,000. Roughly.Yes.

Minh Le: 25:05

That's amazing.

Rob Maxwell: 25:06

And I don't think that's available in too many places on the market, if any.

Minh Le: 25:11

And a comparison of this hybrid cost compared to other prices around Australia?

Rob Maxwell: 25:17

Well we think at the minute the prices that we've secured with our builders are actually very competitive, that significantly lower than other parts of Australia have, and that might change as supply costs increase, but we're more than comfortable with the pricing that we've been given.

Minh Le: 25:34

I think from an investor's point of view, they're after cash flow and yields and investors do seek a SDA investment for different reasons one could be to have a social impact on the community. One is to provide for a family member who may be in need of a SDA home. Others could be yields focus only, and others could be cash flow only. So I guess, this flexible product being a hybrid build is really effective from an investor's point of view long term, I guess.

Rob Maxwell: 26:08

Yeah. You have just another option for you all to consider.

Minh Le: 26:11

Wow. Well, we look forward to hearing more about that Rob in the coming few weeks as as we fly down to Melbourne quite regularly to spend time with developers, builders and third parties. We're very excited to launch our business into the Melbourne market with various partners like yourself. And thanks so much for your time. Rob, we'll talk to you soon.

Rob Maxwell: 26:31

All right. Thanks, Minh. Happy to help and let's see how we can help your investors.

Minh Le: 26:36

Thank you. Bye bye.