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National Rental Affordability Scheme

Information for investors

About the Scheme

The National Rental Affordability Scheme (NRAS) is a long term commitment by the Australian Government to investors prepared to build affordable rental housing. The financial incentive, payable either as a grant or refundable tax offset, is paid annually for up to 10 years. To remain eligible to receive the incentive, known as the NRAS Incentive, the investor must rent their property to low and moderate income households at 20 per cent below market rates.

The Australian Government has committed approximately $1 billion to the Scheme over four years, to stimulate construction of up to 50,000 high quality homes and apartments. NRAS is not a public housing program; it is a tax incentive to induce more private investment in the lower price range of the residential construction market.

A new asset class

NRAS is a new opportunity for government, debt and equity investors, property developers and not for profit housing organisations to work together to increase the supply of affordable private rental housing and create a new ongoing asset class in Australia. It recognises that governments have a role in creating and encouraging new markets.  The Australian Government has made a 10 year financial commitment to NRAS. NRAS has bipartisan support.

The design and quality of NRAS dwellings compare favourably with any private non-NRAS dwelling.  Typically, they are indistinguishable from other ‘middle-market’ dwellings.

What do investors get?

NRAS offers a substantial annual tax-free incentive, the NRAS Incentive, for every dwelling built under its auspices. Investors need to apply for NRAS Incentives, and if offered, must agree to rent approved dwellings at

20 per cent or more below current market rates, to low and moderate income households. The NRAS Incentive is a funding stream not available to standard residential property investors.  Each approved dwelling attracts the NRAS Incentive for 10 years, so long as investors continue to comply with conditions around tenant eligibility and rent discounts. The annual income-tax free Incentive is currently $9,140 per dwelling, and is indexed each year to the rental component of the CPI.  The Incentive comprises:

•      an Australian Government contribution of $6,855 per dwelling per year (as a refundable tax offset or payment); and

•      a State or Territory Government contribution of $2,285 per dwelling per year (in direct or in-kind financial support).

The Incentive provided under the Scheme assists investors and property developers to work up proposals that offer an attractive and competitive rate of return.

The Government is committed to ensuring that the full value of the NRAS Incentive is passed to all investors. Prospective investors are encouraged to talk to the Australian Tax Office before finalising their investment structure or applying for NRAS Incentives, to ensure this policy objective is achieved. The Australian Government has no legal or equitable claim over an NRAS property.

How can investors participate in NRAS?

Interested investors need to apply to the Australian Government for an allocation of NRAS Incentives. Investors at scale may apply for NRAS Incentives for individual projects, or partner with not for profit housing providers and property developers to build properties in different locations.  Consortiums and non entity joint ventures are common models for NRAS projects.

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. Entities operating as investment vehicles for small-scale investors might be superannuation funds, property trusts or consortiums 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. Many investors will need finance to help purchase an NRA property.

The Australian Government is working with, and keeping the finance sector up-to-date about NRAS to ensure all loan applications involving NRAS properties can be assessed on the particular project proposal, loan conditions, surety and the ability of the applicant to service the loan. The Government encourages investors to work with their lending institutions to provide detailed information about the structure of their NRAS proposals.

Property and tenant management

As with any private investment property, there are a range of property and tenant management services that need to be performed for all NRAS properties. NRAS investors must appoint a tenancy and/or property manager to provide services including selection of tenants and periodic assessment of their ongoing eligibility to rent an NRAS property, as well as property maintenance. A tenant manager can be contracted on a fee-for-service basis by an investor, or be part of the consortium which applies for NRAS Incentives.