Government to expand NRAS scheme with aim of 50,000 homes by 2015

The National Rental Affordability Scheme (NRAS) is set to expand with the federal, state and territory government planning to issue another 10,000 incentives worth around $40 billion to developers under the scheme.

Each incentive equates to one home under the scheme with around 11,300 homes built since its launch in 2008.

The scheme aims to provide affordable rental accommodation at a 20% discount to market rents, while property investors get an annual tax free incentive of just under $10,000, which is indexed each year to the rental component of the CPI.

The NRAS scheme was launched by Kevin Rudd in 2008 but failed to gain initial traction due to a perception that it was a social housing scheme with just 329 homes delivered in the first year.

Momentum has picked up since around April 2011 (as the graph below shows) with 11,277 homes delivered as of December 2012. However, momentum will have to pick up signficantly if the government wishes to achieve its target of 50,000 homes by 2015.

Property investors can participate by buying an NRAS-qualifying house or apartment and receiving the tax-free incentive in exchange for offering the 20% rental discount.

Actual Delivery of Incentives by end of NRAS Year (30 April) – Cumulative: 

nrasmarch7

The Australian Financial Review quotes Mark Butler, federal minister for housing and homelessness as saying he is working with state and territory ministers to open the fifth round of NRAS incentives with the aim of completing 50,000 houses by June 2015.

It follows the release of The National Housing Supply Council's 'Housing Supply and Affordability Issues 2012-13' report, which warned of a low volume of new housing supply coming onto the market with the shortage “likely to continue to be felt by the more vulnerable in our population, such as would?be buyers with low and insecure incomes, those at the lower end of the rental market and those dependent on government income support payments”.

In December last year, Brisbane apartment builder David Devine, whose Metro Property Development Company is currently the most successful seller of new off-the-plan apartments in inner Brisbane, told Property Observer that self-managed super funds and NRAS investors were among the biggest buyers of his off-the-plan apartments in his projects.

Metro has marketed more than 50% of the 308 apartments in its Madison Heights development as NRAS-approved investments, compared with 20% in its first development, the Chelsea.

Financial advisory firm Onyx Wealth, which promotes NRAS property investments, says SMSF investors should consider acquiring an NRAS property because of the positive cashflow benefits,

“NRAS properties have greater negative gearing than equivalent non-NRAS properties,” says Paul Thewlis and Margaret Hardy from Onyx.

“By giving up 20% of the taxable rental income the SMSF increases its tax loss. Normally a loss is undesirable, but in this case it is usually offset by the value of the NRAS incentive,” they say.

Ernst & Young partner Ross Hamilton told The Australian Financial Review he expected a “massive response” from developers to secure the incentives.

The tax incentive comprises an Australian Government contribution of $7,486 per dwelling per year (paid as a refundable tax offset or payment); and state or territory Government contribution of $2,495 per dwelling per year (in direct or in-kind financial support).

Financial institutions, investors, private developers, not-for-profit organisations and community housing providers are all eligible to apply for NRAS incentives.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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