The National Rental Affordability Scheme – Investor Benefits
What is NRAS?
In 2008, the Australian Federal government, along with commitments from states and territories, initiated the National Rental Affordability Scheme (NRAS). NRAS legislation represents a long-term plan aimed to provide new rental housing to low and moderate-income earners at affordable costs.
Under the NRAS, potential investors are urged to buy an NRAS approved dwelling and agree to rent the property out at 20% below the local market home rental rate.
As an incentive to encourage large-scale investment in NRAS approved properties, the government offers either a grant or a tax exemption for up to 10 years. Based on present criteria, the Australian Government has identified more than 1.5 million national households as potential tenants eligible for NRAS assistance.
What are the Incentives?
The National Rental Affordability Scheme is a national opportunity for a property investment that provides financial incentives that combine both a potential real gain and a tax rebate. Investing in an NRAS approved property can currently provide up to almost $10,000 in state and national tax tree incentives.
The NRAS agreement is secured for 10 years, but the property must remain approved for the benefits to continue. When the agreement ends, the investor is free to on-sell the property or rent it out at market value. Prior termination will incur a penalty unless the buyer agrees to continue the obligations under the NRAS agreement.
Investing in an NRAS Property
NRAS is aimed at large scale not individual investment. Obtaining NRAS approval of properties and maintenance of that approval is complicated legal process. Consequently, investors usually purchase an NRAS approved dwelling from a NRAS approved consortium.
Consortiums consist of two or more investors that purchase or construct a home development that will meet the NRAS requirements. Consortiums can take different legal forms. Non-Entity Joint Venture, Head Lease Structured and Real-Estate Delivery Agreement Consortiums are most common.
Typically, the consortium provides the funds to finance a housing development and obtains NRAS approval. The individual investor then purchases one or more of these properties as their investment and gains the benefit of the NRAS incentives and any future potential property sale. Usually the consortium maintains the property. The individual is responsible for claiming their NRAS tax rebate in their tax return.
How to Finance an NRAS Investment Purchase
Finding a loan to finance a purchase through consortium can present difficulties. Experienced national mortgage brokers that specialise in NRAS approved properties can assist the investor in obtaining financing based on their income, employment, property type and property location.
Getting approval for a loan largely depends on how banks and lenders view NRAS properties and the particular consortium through which an investor chooses to invest. Banks and other lenders investigate the legal structure and contractual policies of consortiums with their investors and determine how the policies impact the security position of the property. After evaluation some lenders may label certain NRAS consortiums as high-risk investments.
Although some banks and lenders approve many consortiums with a “headlease” structure, many lenders favour consortiums that are structured as non-entity joint ventures. Every investor should consult with their financial advisers and mortgage brokers to determine the right product for them.
A mortgage broker can help you finance your loan
A mortgage broker experienced in obtaining loans for NRAS properties will know the NRAS consortiums and their potential lenders. Additionally, the broker can help frame an investor’s application in the most favourable light for their situation and the lending guidelines of the banks.
The broker can work with banks to obtain a mortgage with a Loan to Value Ratio (LVR) of up to 90% plus Lenders Mortgage Insurance (LMI). In some cases, lenders can be found that will consider a portion of the tax incentive in assessing the investor’s ability to repay the loan.
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