The National Rental Affordability Scheme
Many Australians own their own home, but there are still many people who choose to rent instead. It might be lifestyle or perhaps their budget doesn’t stretch to owning property yet.
What is the NRAS?
The National Rental Affordability Scheme, or NRAS, was introduced in 2008. It helps lower income earners with more affordable rental accommodation, 20 per cent below market rent. Through the NRAS, the government also encourages large-scale investment and aims to boost housing supply. Although it seems like it may only benefit renters, this isn’t true. It’s also a great option for anyone looking to make a move into property investment.
If you purchase an investment property through the NRAS, there are benefits for the investor.
The biggest incentive is related to tax. The annual NRAS incentive is paid to you annually for 10 years. This is adjusted to be aligned with the Consumer Price Index, so it can fluctuate from year to year. At the end of the 10-year period, you will have complete rights to do as you please including renting it outside of the scheme. There will be no obligations to the government through the property. This means you can choose to rent the property at whatever level you see fit as it will no longer be part of the NRAS.
What are the criteria?
The NRAS is open to financial institutions, medium to large-scale investors and private developers. Individual investors are also able to purchase NRAS properties – however, this is usually through superannuation funds or property trusts. NRAS properties can be purchased by individual investors from approved developers too.
This means if you’re looking to purchase one or two NRAS properties for investment, you’ll need to approach an entity that is already applying or has an allocation of NRAS incentives.
Approved NRAS properties are usually brand new and haven’t been lived in. They can only be rented out to eligible low-income earning tenants.
As an NRAS property owner, there are a number of ongoing compliance requirements you’ll need to stick to to receive your incentive payment. These include keeping the rent at least 20 per cent below market level and not increased more than once a year. You’ll also need to use an approved property manager to look after your investment.
- Properties are located in high-demand areas and are usually close to amenities
- NRAS dwellings come in all forms – from studios to family homes
- Demand is usually high so you don’t need to worry about lapses in tenancies
- You can have a guaranteed incentive paid to you each year for 10 years
- After 10 years it will be just like any other property you own.
- After 10 years you won’t receive the incentive
- Like purchasing any property, make sure the valuation comes in at purchase price. You can order a valuation yourself before you purchase
- There’s a restricted market for tenants as they need to be eligible
- Resale can be complicated if you’re looking to sell before the 10 year period ends.