Cocoon SDA Care: Investors fear of huge losses as NDIS houses sit empty across Australia
Investors were promised a huge return by now suspended disability provider Cocoon SDA Care. Instead, there are scores of empty NDIS houses. See where and latest advice for Aussies.
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EXCLUSIVE: A suspended NDIS provider could cost investors hundreds of thousands of dollars, with half of the nearly dozen homes they were encouraged to buy in the one street sitting empty.
The situation is replicated across the country, with scores of postcodes blacklisted by a lender because of a glut of new build disability housing in areas where there are not enough tenants.
Leaked documents from 2023 revealed that Cocoon SDA Care was in control of 11 homes in Westbourne Street, Strathtulloh, in Melbourne’s outer western suburbs.
Six of those 11 properties were vacant when they were visited this week, some with chest high weeds in the garden and cobwebs on the front door.
Former bankrupt Zaffar Khan, who is the corporate strategist for Cocoon SDA Care, offered “guaranteed returns” in a marketing video at a property conference in Shanghai, China.
“We have properties in all seven states (of Australia) and anyone who purchases our properties we pay $130,000 guaranteed rental income with the investment of $1.3 million,” he said in the video recorded in December.
On his overseas recruitment missions, Mr Khan was often accompanied by his executive assistant, former Bachelor contestant Marg Irving.
Title searches revealed that 27 Westbourne Street was owned by Yin Ni Yanny Tjoe, of Hong Kong, while 28 Westbourne Street, which appeared to have been vacant for months, was owned by Wen Liang Liu of Taiwan.
Shiraz Hannifa paid $670,000 for a NDIS home in Claudia Street, Kurunjang, in Melbourne’s outer western suburbs.
“Cocoon was meant to be the head lease holder but it was vacant for a year and half. I was paying $68,000 in interest because I went to a non-bank lender. I was in severe mortgage stress,” he said.
Mr Hannifa managed to exit his seven-year lease, but said investors should be warned about the risks of buying NDIS properties.
Internal company documents show that in 2023, 98 per cent of Cocoon’s specialist disability properties in the NT were empty, while in Victoria it was 82 per cent, Queensland 77 per cent, NSW 31 per cent and South Australian 11 per cent.
A former employee revealed how he managed to fill some of the Darwin properties with refugees to try and bring in some income.
Goro Gupta, who is involved in the specialist disability accommodation sector, warned about “spruiker sellers” back in 2019, and claimed he raised the issue with former NDIS ministers Michael Sukkar and Bill Shorten. He said there is still demand for disability homes but they’re being built in the wrong areas.
“There’s a massive oversupply, at least 50 per cent vacancy rate in the ‘robust’ category of buildings,” Mr Gupta said.
Former Cocoon SDA Care chief executive Tanya-Lee Quinn said she reported her concerns about the company to the NDIS Commission in 2023.
The company was issued a temporary ban on providing some NDIS supports this month.
When asked about concerns surrounding Cocoon SDA Care, Mr Khan said: “Cocoon SDA Care is a legitimate, fully operational business that has provided real services to real participants under the National Disability Insurance Scheme (NDIS).
“We have built a reputation through hard work, compliance, and a commitment to participant wellbeing, with a substantial workforce, signed service agreements, and millions of dollars in tangible infrastructure and care services delivered.”
Cocoon’s parent company, Horizon SolSolutions, only narrowly avoided going into bankruptcy last year amid a $10 million debt to the Australian Taxation Office.
Mr Khan promoted Cocoon SDA Care’s success in a “sponsored article” in the Australian Financial Review in December last year, saying residents were happy in their NDIS homes he provided because they were offered ‘Zoom discos’.
He said the company had promised investors 10 per cent returns in “good faith”.
“However, all such representations were subject to the understanding that returns are contingent upon operational performance, regulatory conditions, and funding flows from the National Disability Insurance Scheme (NDIS),” he said.
Tips for investors in Specialist Disability Accommodation (SDA)
*Check the providers vacancy rates. Anything under 25% is what you should be looking for. The industry currently averages 50% tenancy.
*Does the provider have tenants in that suburb looking for houses already?
Build it and they will come does not work in SDA housing.
*A lot of marketers give you a gross return, you should be focusing on your return after management fees, as management of these properties take about 10 times as many resources as regular houses
*It is not hard to be registered as a provider, but most providers who do not know the disability industry will likely not pass the audit and the house becomes consequently
unusable.
*These houses need to be much larger than a normal house due to disability requirements and larger than what the government mandates. As an example, a three participant house being larger than 230 sqm.
*A provider’s NDIS registration should be at least 36 months old.
*Choice and control means that the tenants can move out if they are not satisfied with provider, carer or other tenants.
*Look for a provider that manages over 50 houses.
*If they do not have one or suggest that you can become one, you should look elsewhere
*Anyone can make up statistics, but evidence of tenants moving in cannot be refuted.
Your provider must have significant knowledge of disability, rather than property management.
Source: Ethical Property Investments
More advice from the NDIS
*As SDA rates are set, you should exercise caution with any advertisement that claims excessively high returns.
*The NDIA does not guarantee investment returns. Prospective investors carry the risks of their investment.
*SDA is a niche market and prospective investors should extend their due diligence to understand drivers of demand and locality implications.
*Dwellings intended for use as SDA are required to meet local, state and national construction codes and planning regulations for the build and use of the dwelling.
*The claim for payment does not commence until the participant resides in the SDA dwelling and there is a service agreement in place between the SDA provider and the participant.
*The NDIS does not “place” or “match” participants to an SDA dwelling, it remains the choice of the participant as to where they live.
Source: ndis.gov.au
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