Retirees and other retail investors pitched double-digit “government-backed” returns to be National Disability Insurance Scheme landlords are set to lose hundreds of thousands of dollars, with the fund manager admitting it cannot find tenants.
Investors in at least 14 schemes face the prospect that the funds in which they invested will be wound up after months-long searches to find high-care patients who qualify for government-subsidised rents under the NDIS failed.
The scheme was marketed by ASR Wealth and overseen by DomaCom, an ASX-listed investment platform chaired by former Liberal leader John Hewson. DomaCom allows investors to pool money into a single property by purchasing units in a managed fund.
One of the investors in an NDIS housing fund run by ASR Wealth. Some of those funds are being liquidated while other investors claim they have not been able to get any information from the company about delays to their projects. Michael Quelch.
“As you would be aware, we have had difficulty in finding tenants for the underlying property,” DomaCom chief operating officer Ross Laidlaw said in an email to investors in a fund tied to a house in Cobblebank, a suburb on the far western fringes of Melbourne.
Other emails to investors obtained by The Australian Financial Review warn that funds attached to 14 properties in that suburb alone could be liquidated, and others under threat include those linked to houses in Beveridge, a town north of Melbourne.
“There is no assurance that there will be suitable tenants available in the future as there appears to be an oversupply of NDIS properties in this area in Melbourne,” the emails warn.
DomaCom manages about $200 million in more than 100 funds. The company’s chief executive, Steven James, confirmed 14 properties under review “will most likely be sold and approval has been given by the trustee to do so.
“It is too early to make any further assumptions on the outcomes, and who the prospective buyers may be, although every possible option is being explored to ensure the best results for investors. Some of the potential buyers may be other government departments, other NDIS Housing providers or private purchasers.”
Aggressive marketing campaign
The funds were raised by ASR Wealth, a Sydney-headquartered investment advisory. In 2021, it launched an aggressive marketing campaign promising investors returns of about 17 per cent a year by investing in properties that could house tenants who qualified for subsidised rents under a scheme known as specialist disability accommodation.
ASR Wealth did not respond to requests for comment. It is raising $1 million for more investments through the DomaCom platform.
Investors in other ASR Wealth funds backing NDIS housing – but not those being liquidated – said there had been a delay in the completion of properties they were involved in, with little communication from the company about what was going on.
The Financial Review flagged the potential for investor losses in 2022, and disability housing operators warned that investment marketers were buying cheap land – and configuring properties to patients who need the highest level of care, attracting the highest level of subsidies – even if no demand existed in those locations.
Investors were enticed by what ASR Wealth representatives described in marketing emails as a “new passive income opportunity … offering investors exposure to a high-yield, government backed investment property”.
The investment in Beveridge was marketed as “NDIS approved and estimating a return of 12 per cent per annum net … paid monthly”.
But those returns have not eventuated and investors are facing the prospect of capital loss after tipping in funds and paying upfront fees. DomaCom’s own platform shows that many investments are loss making and are not producing any income because of the lack of residents. Several unit prices also reflect significant declines in the value of the investments as upfront ongoing costs erode the net asset value.
“They said ‘we are working with the NDIS, we are looking at the highest areas for need, we’re structuring where we’re going with where it’s needed’,” one retiree investor told the Financial Review. “Nothing was further from the truth.
“There was supposedly this pent-up demand, so much so these houses were going to be occupied from day dot. They’ve hung me out to dry.”
In 2016, the government committed $700 million annually for the specialist disability accommodation under the NDIS, although the agency administering the program frequently spends just a fraction of that money.
Still, the costs of the NDIS are growing faster than expected, on track to overtake the age pension as the most expensive area of government spending within three years if it is not reined in. Labor is attempting to cut the annual growth rate of the NDIS to 8 per cent from 20 per cent, although these efforts have been hamstrung by the Senate.
Despite strong demand for specialist disability accommodation, ASR Wealth’s funds have operated so poorly that DomaCom has been forced to recommend to its trustee, Melbourne Securities, that they be wound up.
One retiree, according to the documents they shared with the Financial Review, invested close to $1 million in the NDIS property funds. They are now behind by more than $100,000 on their investment; DomaCom has so far charged about $35,000 in fees.
“The fees don’t stop, the take doesn’t stop, but the results aren’t there,” the retiree, who spoke on condition of anonymity, said. “I was waiting to see what was going to happen from here and see how far we’re underwater.”
Others describe how aggressive the marketing was. “There were four or five messages left pertaining to the investments. When I finally got back to them, they would say things like ‘it’s limited and only for VIP investors’,” one said.
“They were good in the front-end,” another said. “When it came to serving those customers, it was completely inadequate. The silence is deafening.”
DomaCom’s Mr James, who become chief executive only in March, described providing the specialist disability housing as a “fluid situation”. “You would also be aware that … investment properties do become vacant and need to be re-tenanted. These vacancies are often brought about by the passing of the tenant,” he said.
“DomaCom are very conscious that there are some underperforming NDIS-related assets on the DomaCom platform. As part of the new management team and board, DomaCom has been working hard with multiple agencies both within and outside of the NDIS structure to find solutions and take actions in the best interests of investors.
“Whilst it is possible to draw attention to the current oversupply in some areas currently, typically rural areas where land is or perhaps was less expensive to develop, there are shortages of supply in other areas. There are many other segments of the population that could take up supply of empty housing not currently being taken up by NDIS recipients.”
Mr James said he had met government officials to look at other uses for the empty houses, including for emergency domestic violence refuge, foster care and short-notice homelessness.
For now, ASR Wealth’s investors anxiously wait for news.
DomaCom has distanced itself from ASR Wealth. “Although DomaCom does have the ability to provide general advice, the main distribution channel is through separate financial advisory groups,” Mr James said.
DomaCom and ASR Wealth have some links, however. ASR Wealth’s co-fund manager, George Paxton, sits on the DomaCom board, as did its managing director, Matthew Roberts, until April last year. Mr Roberts and Mr Paxton are also executives at Halo Technologies, which owns 13.2 per cent of DomaCom.
Mr James said those links had been properly disclosed in investor documents.
This article first appeared in Australian Financial Review.
