What is NRAS and Why Should You Consider It as Part of Your Investment Plan?
The following information has been collected from various Australian Government web sites for your information. The relevant links appear at the end of the document, if you wish to do further investigation of your own. If you have any questions about this information or about how NRAS may fit into your investment goals, please contact Hawkscrest Property on 1300 429 539.
About the Scheme
The National Rental Affordability Scheme (NRAS) is a long term commitment by the Australian Government to investors prepared to build affordable rental housing.
NRAS seeks to address the shortage of affordable rental housing by offering tax-free financial incentives to the business sector and not for profit housing organisations to build and rent affordable dwellings. Through this, NRAS will:
- increase the supply of new affordable rental housing;
- reduce rental costs for low and moderate income households; and
- encourage large scale investment and innovative management of affordable housing.
The financial incentive, payable as a tax credit, is paid annually for period of 10 years based on all NRAS criteria being met.
The Australian Government has committed approximately $1 billion to the Scheme over the coming years, to stimulate construction of up to 50,000 high quality homes and apartments.
NRAS is not a public housing program; instead it is a tax incentive to induce more private investment in the lower price range of the residential construction market.
A new asset class
NRAS is a new opportunity for government, private investors, debt and equity investors, property developers and not for profit housing organisations to work together to increase the supply of affordable private rental housing and create a new ongoing asset class in Australia.
It recognises that governments have a role in creating and encouraging new markets. The Australian Government has made a 10 year financial commitment to NRAS. NRAS has bipartisan support.
The United States Government successfully implemented a similar program in the 1980s, resulting in over 1.5 million homes being built and US$5 billion in tax credits being paid annually.
NRAS is a new investment program for Australia, and based on the US experience, will take a number of years to fully develop. The Australian Government is committed to working with State and Territory governments, the business sector and not for profit housing organisations to ensure the Scheme’s success.
NRAS is well underway with over 41,000 Incentives allocated and reserved to providers to build affordable homes across Australia.
The design and quality of NRAS dwellings compare favorably with any private non-NRAS dwelling. Typically, they are indistinguishable from other ‘middle-market’ dwellings.
Rigorous selection criteria are applied by the Australian Government to the location, design and amenity of NRAS dwellings to ensure quality properties are built to the highest standards and comply with State, Territory and Local Government planning and building codes and requirements.
Why invest in an NRAS property?
The National Rental Affordability Scheme (NRAS) is a scheme targeted at private investors (new and seasoned) seeking improved returns on their direct property investment.
NRAS provides a substantial annual tax-free financial incentive per dwelling to investors who build and rent approved dwellings at 20 per cent or more below current market rates, to low and moderate income households.
Approved NRAS investors will be eligible for tax-free incentives not available to conventional, individual residential property investors, with each approved dwelling attracting an annual National Rental Incentive for 10 years.
What is the annual National Rental Incentive?
The annual National Rental Incentive is income tax-free, indexed annually to the rental component of the Consumer Price Index (CPI) and is complemented by existing taxation arrangements including depreciation. The Incentive currently comprises:
- an Australian Government contribution of $7,486 per dwelling per year as a refundable tax offset (not-for-profit organisations endorsed as charities by the Australian Taxation Office can choose to receive the contribution as a refundable tax offset or a direct payment); and
- a State or Territory Government contribution of $2,495 per dwelling per year in direct or in-kind financial support.
What are the commercial benefits of investing in an NRAS property?
NRAS creates a new residential property asset class for property investors and presents a new investment opportunity in the Australian market. It is intended as a commercial, profitable investment for participants while also increasing the supply of affordable housing in Australia.
The residential rental market represents a good long-term investment with the opportunity for significant capital gains. Investors in the Scheme can expect to benefit from the annual tax-free NRAS Incentive for 10 years, rental yields and capital gain.
How do returns on an NRAS investment dwelling compare with a conventional residential investment property?
Under NRAS, investors receive a tax free incentive of $9,981 per annum (indexed annually) for 10 years for each approved dwelling rented at a 20 per cent reduction on market rent.
Compared with a conventional residential investment property, in certain markets, the addition of the tax-free Incentive can provide a better cash return to the investor than charging market rent. In addition, investors could apply property expenses and non-cash deductions and allowances against a lower (80 per cent of market) assessable rental income which could amplify the negative gearing benefit.
What are the characteristics of an NRAS dwelling?
The design and quality of NRAS dwellings compare favourably with any other private market non-NRAS dwelling. Typically, they are indistinguishable from other ‘middle-market’ dwellings.
Rigorous selection criteria are applied to the location, design and amenity of NRAS dwellings to ensure quality properties are built to the highest standards and comply with State, Territory and Local Government planning and building codes and requirements.
Who can rent an NRAS dwelling?
NRAS aims to provide affordable rental housing for the nation’s critical infrastructure workforce, such as teachers, nurses, police officers and paramedics, as well as other low to moderate income earners.
Can I sell my NRAS property or remove it from the Scheme and rent it at market rates?
Investors no longer wanting to participate in the Scheme can sell their dwelling or cease their participation prior to completion of the 10 year NRAS term without incurring any early exit penalties:
a dwelling can be sold to another investor who undertakes to comply with NRAS
an equivalent dwelling can be offered as a substitute dwelling for the remaining part of the
At the end of the 10 year NRAS period, properties revert to full control and ownership of the investor.
New NRAS dwellings will continue to become available for rent over the coming years and will continue to be rented under the Scheme for up to 10 years. As there is considerable demand for these dwellings there is no guarantee that you will be able to rent a dwelling developed under the Scheme.
The Australian Government does not select tenants or maintain a waiting list for homes supported by NRAS. This is done by the tenancy manager of the particular property. Tenants need to contact the tenancy manager directly to register their interest. The allocation of NRAS dwellings to tenants is assessed by, and at the discretion of, the tenancy management organisation. As long as NRAS eligibility requirements are met, decisions will be made in line with their usual policies and processes.
Tenant Income Levels
NRAS homes are required to be rented to eligible tenants at least 20 per cent below the market rent to be eligible for the National Rental Incentive annually. The income levels for eligible tenants are specified in the NRAS Regulations. Initial tenant income levels are assessed against gross income according to the household composition as identified below.
|Household type||Initial income limit||Upper income limit|
|Sole parent with 1 child||$59,099||$73,874|
|Sole parent with 2 children||$73,267||$91,584|
|Sole parent with 3 children||$87,435||$109,294|
|Couple with 1 child||$73,225||$91,532|
|Couple with 2 children||$87,393||$109,242|
|Couple with 3 children||$101,561||$126,952|
Household income limits are indexed annually on 1 May in accordance with the NRAS tenant income index.
Eligible tenants' income must be equal to or less than the initial income limit when they become a tenant of an NRAS dwelling. Income may increase up to 25 per cent (the upper income limit) before their eligibility is affected.
Incoming NRAS eligibility for household types not covered above can be calculated using the values below:
|Person type:||Income level|
|Each additional adult||$16,339|
|First sole parent||$44,931|
For NRAS purposes, a household is considered to be all persons ordinarily residing in the dwelling. The Department therefore requires all persons who ordinarily reside in an approved rental dwelling to have their income included as a member of the one household, in accordance with the income limits.
An independent written valuation of the market rent is required for each dwelling when it first becomes available for rent under the NRAS and at the end of the fourth and seventh years of the approved rental dwelling's 10 year participation in the Scheme. Rent must be charged at no more than 80% per cent of the market rent valuation.
Other than for the first, fifth and eight years, variations to market rents in NRAS Dwellings can be based on:
- local or State based rental movement data; or
- desk-top valuation, that is, consideration of reports, data and information at hand; or
- the NRAS market index, that is, the rents component of the Housing Group of the Consumer Price Index (CPI) for the year ending in the December quarter immediately preceding the current NRAS year at the capital city rate for the State in which the dwelling is located.
There is to be a maximum of one rent increase for each dwelling each year.
Any increase to rent must not exceed the percentage change in the rental component of the Housing Group CPI.
Housing Group CPI by capital city for NRAS year 1 May 2012 – 30 April 2013.
|Sydney (New South Wales)||6.3|
|Adelaide (South Australia)||4.9|
|Perth (Western Australia)||3.9|
|Darwin (Northern Territory)||1.6|
|Canberra (Australian Capital Territory)||6.4|
The NRAS Incentive is indexed according to movements in the Rents component of the Housing Group Consumer Price Index for the year, December quarter to December quarter as at 1 March, using the weighted average rate of eight capital cities housing component, and is effective from 1 May. Rents Component - Weighted average of eight capital cities - 5.4% in 2010-11.
|Current NRAS Incentive|
|2012/2013||Australian Government Contribution||$7486.00|
|Previous NRAS Year|
|2011/2012||Australian Government Contribution||$7143.00|
|Previous NRAS Year|
|2010/2011||Australian Government Contribution||$6855.00|
|Previous NRAS Year|
|2009/2010||Australian Government Contribution||$6540.00|
|Previous NRAS Year|
|2009/2010||Australian Government Contribution||$6000.00|
Relevant web links:
Australian Government - Departments of Families, Housing, Communicty Services and Indigenous Affairs: www.fahcsia.gov.au
Australian Tax Office: www.ato.gov.au
Hawkscrest Property: www.hawkscrestproperty.com
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