NRAS … What Does it All Mean?

What is NRAS?

The Australian federal government launched the National Rental Affordability Scheme in 2008 to address two primary housing policy goals:

– increase the supply of new rental housing to match the demand

– improve the affordability of rental properties for middle income earners

NRAS is an economic initiative – part of the federal government’s Financial Stimulus Package – designed to stimulate the supply of affordable rental properties.

Treasurer Wayne Swan on NRAS… “As you know, rent increases are outstripping wages growth and inflation. This is making it harder for Australians on low to moderate incomes in the private rental market.

“NRAS is a major supply-side initiative to make rental properties more affordable by encouraging large-scale investment in rental housing for low and moderate income families and individuals. It aims to assist institutional investors, developers and not-for-profit groups to deliver 50,000 rental dwellings over the next four financial years by creating a new residential property asset class for property investors.”

What are the key benefits for investors?

The incentives are designed to encourage Australians to invest in rental housing and at the same time build wealth through capital growth in the property market.

– Government funded tax free incentives totalling $100,000+ over 10 years (with indexation)

– Increased property occupancy as a result of high demand for NRAS rental properties

– NRAS incentive is income tax free

Which properties can be NRAS properties?

There is no discrimination through the quality of housing – NRAS housing is no different to new standard owner occupier or investment houses, townhouses or units.

– All NRAS housing must be pre-approved under the federal government’s sustainability criteria

– NRAS properties must be located in urban or regional growth areas with strong jobs growth and high rental property demand

– Approved NRAS properties typically range in price from less then $300,000 to $500,000, depending on their location

How does NRAS work for tenants?

Market rentals are subject to independent valuations in years one, four and seven, of the NRAS scheme. These are indexed to the rental component of the CPI in other years.

To be eligible, prospective tenant households must be within certain income thresholds. These thresholds vary from just over $41,000 per annum for a single adult person to more than $100,000 per annum for two parents and three children.

– Eligible tenants receive a discount of 20% to 25% off normal market rents

– Tenants are subject to normal tenancy criteria checks

– The target market is typical middle income families and professionals such as police, teachers, nurses, public servants and tradespersons

How does NRAS work for investors?

Property investors in the NRAS scheme receive a generous tax free incentive over 10 years.

– The initial NRAS incentive was $8,000 in the 2008 financial year

– The NRAS incentive is increased on 1 May each year by the “Rental CPI”

– The NRAS incentive is currently $9,524 for the 2011-2012 financial year

– The NRAS incentive is paid to investors each year in two parts – 75% as a tax rebate from the federal government upon lodgement of income tax returns and 25% in cash from the respective state government

– NRAS properties can be sold at any time, with the remaining benefits (for that and subsequent years) being passed on to the new investor

What about NRAS in management rights?

For the resident manager, there are a few main issues to consider:

– The standard commission fee charged on the lower NRAS rentals will reduce the resident manager’s monthly income and net profit of their business

– The additional paperwork obligations on the resident manager under the NRAS scheme will increase their workload

– The resident manager may charge an NRAS administration fee to the unit owner to compensate them for their increased paperwork obligations, thus offsetting the reduced commission earnings

– The additional NRAS administration fee charged to unit owner will reduce the net result of the government funded tax free incentives for the unit owner

Most importantly, resident managers considering the purchase of an off-the-plan permanent management rights complex with NRAS schemes in the complex need to ensure their letting authorities for the NRAS dwellings address the above issues … after all, we don’t just do this for the love of it.

Tony Rossiter

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