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National Rental Affordability Scheme - What does it mean for you?

by Shane McGrath

28 Jun - 2011 - 12:00 AM

Tags: investment property nras

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The National Rental affordability Scheme (NRAS) was introduced by the Australian Government to provide property investors with an incentive to build new affordable rental housing.

Because NRAS aims to encourage large-scale investment in affordable housing, NRAS Incentives cannot be applied for by small-scale, individual investors.Instead, individuals who are interested in purchasing just one or two NRAS properties as an investment can become involved by approaching entities who are applying or already have a larger allocation of NRAS Incentives such as developers.

Entities operating as investment vehicles for small-scale investors might be superannuation funds, property trusts or consortium with many individual investors
taking part. NRAS applicants include institutional investors, individual investors, private developers and not for profit housing providers that build, own and manage NRAS dwellings.

NRAS properties can be sold with in the 10 year period without penalty and can be sold to another investor who undertakes to comply with NRAS obligations; or an equivalent dwelling can be offered as a substitute dwelling for the remaining part of the 10-year period. At the end of the 10 year period the property becomes the full responsibility of the investor.

NRAS properties are private property which the Government has no interest.

The financial incentive is payable as either a grant or refundable tax offset and is paid annually for up to 10 years. Investors are also able to claim the usual property expenses, non cash deductions and allowances (such as depreciation) against the lower rental return increasing the negative gearing benefit.

The annual income tax free incentive is $9140 per dwelling and indexed each year to the rental component of CPI.

Compared with a conventional residential investment property, in certain markets the NRAS Incentive can provide a better cash return to investors than the receipt of full market rent.

As an investor you must agree to rent approved dwellings at 20% or more below the current market rate to low and moderate income households.

NRAS tenants tend to be employed in such fields as childcare workers, nurses, police officers, fire-fighters and paramedics and there are approximately 1.5 million households are currently eligible to rent NRAS properties. Investors can pick any tenants for NRAS properties, as long as these tenants do not exceed a certain income threshold.

With more than 1.5 million households eligible to rent NRAS properties, the vacancy risk is negligible. If you are looking to borrow money in order to finance your investment you need to be aware that not all lenders will consider NRAS properties suitable security - so you certainly need to do your research before considering your purchase.

As always please feel free to comment and ask questions.

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