(NRAS) The National Rental Affordability Scheme is an Australian Government initiative set up to address the extreme shortage of affordable rental accommodation in this country. In terms of this Initiative the Federal and State Government’s offer a substantial financial incentive to property investors. This incentive is also designed to provide a method and incentive for Australian investors to build their wealth and tangible assets, while stimulating the economy and building industry nationally…

In July 2008 the Australian government launched the ‘National Rental Affordability Scheme’ designed to increase the supply of affordable rental dwellings, reduce rental costs and to encourage large scale investment and delivery of affordable housing.

NRAS is estimated to stimulate the supply of a revised amount of up to 35,000 new affordable rental dwellings across Australia by June 2012 at a cost of $623 million. This is a very inexpensive way for the government to have this many dwellings built. It is much more economical for the government to offer incentives to investors rather than build them themselves.

Australia is expecting a massive increase in population, “Australia’s population is projected to grow by 65 per cent to reach over 35 million people in 2049, up from around 21.5 million people now,” Treasurer Wayne Swan, Canberra Times.

In 2009 we reached 21,875,000 persons. (An increase of 443,100 persons (2.1%) since June 2008.

Investors can now take advantage of this opportunity by purchasing an NRAS property like any other investment. Investors receive title, go into a NRAS contract for 10 years with an approved NRAS body called a consortium and then they must offer their property for rental at 25% under the market rent (which is determined by a registered valuer). In return the government gives the investor $8,000 worth of tax free incentives. $6,000 is to be a tax off-set (not a tax deduction) and a $2,000 payment from the state government where the property was purchased. This is delivered every year for ten years rising with the rental component of CPI.

The current payment for NRAS in 2010 – 11 is $9,140 because in 2009 – 10 there was a rental component CPI increase of 5.4% compounding on top of 8.4% in 08-09. What this means is that if all we had in the nine years after the first year was only a 4% rise per annum, in the 10th year the investor would be receiving $12,343. The rents are valued every year. In the first, fourth and seventh year a registered valuer must complete a registered valuation while in the other years a ‘desktop’ valuation is conducted. This ensures that rents keep up with the market and investors then receive the 75% of the increased amount.

The cost involved is an average of 11% management fee on the discounted rent and a range from $9-$12 per week incentive administration fee. Management fees are higher than normal as in most cases the managing agent is selected by the consortium and they must conduct screening of the tenants so they comply with the NRAS scheme terms and conditions, hence higher management fees than a normal investment property. However in most cases investors will not be charged admin or re-letting fees and some pay investors’ rent for two weeks on change over. It is important that when you’re purchasing that investors know the terms and conditions of the particular consortium! There can be other upfront fees again depending on the individual consortiums terms and conditions.

The incentive is the same amount whether the property is worth 250k or 400k.

This means that the cheaper the property the more cash flow positive the property is for investors. However a lot of investors look to buying a 400k property with the view of purchasing a high capital growth property with having no or minimal holding costs for 10 years. Of course all net returns differ depending on the individual’s marginal tax rate. It seems though that a person on 40-50k will be able to invest in a cheaper property and enjoy the benefits of negative gearing, whereas without NRAS negative gearing an investment property on such low incomes is not normally a successful strategy.

This is a negative geared investment with positive cash flow!

The NRAS properties must be brand new. To be NRAS approved, the developer must submit the property to the government. The government researches to see if housing is needed in the nominated area. They look at infrastructure such as transport, health facilities, shops and schools. They then endorse the dwelling which then can be sold to investors.

We are far from any rental glut throughout Australia at present; in fact many places show less than 1% vacancy and NRAS investors are now going to offer a property at 75% of the market rent? – It’s a no brainer!

Investors can sell their NRAS property at any time, most consortiums let you opt out of NRAS you then lose your NRAS tax free benefits from the point of sale. You may sell to another investor who can take the rest of the contract on with the government for the remaining time.