Investors are cottoning on to a poorly sold government initiative.
It’s one of the most tempting property investment opportunities in years, but only a small number of investors have tapped into the National Rental Affordability Scheme (NRAS).
The federal government-backed program is designed to provide 50,000 affordable rental properties by 2014.
The scheme isn’t widely known but is rapidly becoming something every buyer should consider.
The federal government is offering generous subsidies to investors – up to $114,000 during a 10-year period – in return for investors offering rental properties to approved NRAS tenants at rents 20 per cent below market rates. The scheme provides an annual tax-free incentive of at least $9524 for 10 years.
The incentive increases each year in line with the consumer price index and is structured as a refundable tax offset. That means a taxpayer will have the incentive offset against his or her tax bill. If investors have no tax to pay, they receive the incentive as a refund.
There are caveats, however. The NRAS is focused on building new dwellings; established apartments and houses aren’t eligible. And the majority of NRAS approvals so far have gone to projects run by community housing organisations.
The scheme is not directly available to small-scale investors; it favours multi-dwelling developments, so small investors are most likely to access the incentives by buying into a developer-led project.
The NRAS’s cash-flow benefits should also be evaluated if you plan to build townhouses or units on land you own.
Many investment properties produce negative cash flow. Investors, especially first-timers, often pay $7000 or more a year out of their own pocket to make up the shortfall between rental income and outgoings. But through the NRAS, you can produce positive or neutral cash flow early in the life of an investment.
If you choose wisely and structure the financing properly, you’ll also enjoy low holding costs and capital growth.
Units and houses under the NRAS scheme are starting to spring up in the inner city, as well as outlying areas. The scheme helps workers such as nurses and police officers, with eligible tenants able to earn up to $125,590 a household.
Michael Matusik, of Matusik Property Insights, says the scheme’s merits have been poorly communicated by the government.
While the incentives are attractive, Matusik is also impressed that investors can exit the scheme at any time with appropriate notice and without financial penalty.
He says the “design and quality of NRAS dwellings compares favourably with any private non-NRAS dwelling”.
For more information about the national rental affordability scheme, see fahcsia.gov.au/nras.