National Rental Affordability Scheme
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NRAS property at Stony Creek Estate, Cairns, Australia
In July 2008, the Rudd government announced a A$623 million initiative to build 50,000 new residential dwellings provide affordable housing to alleviate the severe housing shortage across Australia’s capital cities.
Named the National Rental Affordability Scheme, property investors can now receive up to A$100,000 in annual tax-free incentives over a 10-year investment period from the government in return for providing rental properties at 20 – 25% below open market rentals.
How does it work?
The federal government’s aim is to provide affordable rental accommodation to two broad classes of renters:
1. ‘Critical infrastructure workers’ – this group includes teachers, nurses, fire-fighters and police who have been priced out of the areas which they work;
2. ‘Income and welfare recipients’ – this group are those residents who are being forced to live further and further away from Australia’s capital cities as a result of fast rising rents.
Corporate superannuation funds, property developers and ‘not-for-profit’ organisations were invited to apply and partner with the government to build, fund and own properties which comply to affordability guidelines which resulted in more than 10,000 NRAS-approved properties now well underway in construction.
Investors who purchase NRAS-approved properties are eligible to 10 years of annual ‘tax-free’ incentives commencing at $8,672 in 2010. Each year, the incentive increases according to the rental component of the official rate of inflation. As rental properties increasing at their highest rate in 20 years, the annual NRAS incentive increase for 2010 is estimated to be 8.4%.
NRAS qualifying criteria
NRAS incentives are available only for properties which meet its eligibility criteria as follows:
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New and ‘off-the-plan’ properties only;
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Rented to ‘approved tenants’ at 20 – 25% below market rentals within the same suburb / region;
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Managed by an ‘approved property manager’ who is responsible in selecting eligible tenants, set rental rates and manager the investment property;
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Investment property is rented under the NRAS for 10 years (except in certain circumstances).
As the government intends to issue 50,000 licenses for properties which meet the criteria, individual property investors need to be aware there is a limited number of properties available under NRAS over the next few years.
Purchasing an NRAS property
The process for individual, private investors to purchase an NRAS property involved a little-known concept called ‘non-entity joint venture partner’ whereby the investor enters into a joint venture with an approved NRAS developer or institution (Joint Venture partner) who has been granted an NRAS licence from the government for a particular property. The investor purchases the approved NRAS property and then enters into two agreements:
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A principle lease agreement with the JV partner who holds the NRAS licence;
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A property management agreement with an approved property manager who is responsible for selecting tenants, managing the property, set rental rates and ensure compliance with the NRAS requirements.
The federal government pays 75% of the NRAS incentive to the JV partner, who in turns pays this amount to the property manager, who in turns pays it to the investor. The investor directly applies to the state government for the remaining 25% of the incentive.
Investors should also request for a ‘private binding ruling’ issued by the Australian Taxation Office from the JV partner to ensure the purchasing process and requirements are correctly set up to avoid possible non-compliance of any NRAS eligibility criteria.
Among the currently approved NRAS projects include properties located in the following locations:
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Burnie, Tasmania;
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Laidley, Calliope, Karalee, Proserpine, Southport, Booval, Redbank Plains, Caboolture and Townsville in Queensland.
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