By Tina Perinotto
7 June 2012 –Frasers Property Australia and its joint venture partner Sekisui House have received one of the largest allocations of funding under the National Rental Affordability Scheme for their Central Park development at Broadway in Sydney.
A total of 828 student dwellings will be now be accommodated throughout the site, to address a shortage of student housing in the area.
The NRAS scheme means each student dwelling will be subsidised with either a grant or tax offset of $$9981 a year, for 10 years, indexed annually.
Frasers Property chief executive officer Guy Pahor told a media lunch on Tuesday of the successful NRAS bid, won in 2011. He said there was currently a shortage of student housing, estimated at 2000 places at UTS and 4000 places at University of NSW.
The first tranche of 201 student dwellings will be accommodated in three low rise buildings (pictured) designed by Tonkin, Zulaikha Greer at Kensington Lane, with the balance elsewhere at Central Park, Mr Pahor said.
The units will not be strata titled and will be managed in one line. They are currently being offered for sale, also in one line, through an expressions of interest campaign and expected to be completed in late 2014 to early 2015.
Most of the dwellings will be studio suites and 20 per cent a mix of three, four, five and six bedroom cluster apartments (self-contained bedrooms with private bathrooms, with shared living/dining/kitchen).
The NRAS win makes Frasers Property one of the biggest recipients in the NRAS program and one of only a handful of private developers that won allocations under the scheme. The balance has been mainly community housing groups.
Another big winner is Questus Ltd, with a massive 3405 allocations, worth $20 million in funding, for housing in remote areas of Western Australia.
Questus director and former WA planning minister, Alannah MacTiernan told The Fifth Estate in February that the funding would be used to improve standards in housing in the outback and would deliver investors a tax free subsidy of nearly $250,000 over 10years, with rents at least 40 per cent below market levels.
Highlights of the National Rental Affordability Scheme follow
According to the NRAS website, the scheme 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”.
It aims to stimulate construction of 50,000 high quality homes and apartments, with 35,000 new dwellings to be supported up to 2014-15 and a further 15,000 dwellings to be supported beyond 2014-15.
The current Round 4 of NRAS is expected to deliver 200 projects to build more than 17,000 affordable rental dwellings for low to moderate income households across the country.
The scheme is available both to business and the not-for-profit sectors.
The aim is to reduce the cost of housing by at least 20 per cent below market rentals with either subsidies or tax offsets of nearly $10,000 a year, for 10 years, indexed annually.
A new asset class
The NRAS website says that the scheme, which has bipartisan support, is a 10-year financial commitment that effectively creates another asset class.
Based on the US experience, the scheme “will take a number of years to fully develop”.
“The design and quality of NRAS dwellings compare favourably with any private non-NRAS dwelling. Typically, they are indistinguishable from other ‘middle-market’ dwellings.”
“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 relating to tenant eligibility and rent discounts.
“The annual income-tax free Incentive is currently $9981 per dwelling, and is indexed each year to the rental component of the CPI. The incentive comprises:
- an Australian Government contribution of $7486 per dwelling per year (as a refundable tax offset or payment); and
- a State or Territory Government contribution of $2495 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.
Benefits of investing in NRAS
“NRAS is intended to be a commercial, profitable investment for participants, while also assisting Australia to increase the supply of affordable housing.
“With higher returns on direct residential property than returns on office or industrial property over the last 10 years,¹ residential property can be a profitable investment.
“While global house prices have fallen substantially globally, the Australian housing sector has shown resilience, primarily due to strong fundamentals – low vacancy rates, high population growth, insufficient housing stock, high employment and sound lending practices.
“Demand for residential property is high with the National Housing Supply Council’s State of Supply Report 2010 estimating a current housing supply deficit of 178,400 homes across Australia.
“Partly due to the shortfall in supply, the residential rental market represents a good long-term investment. Independent financial modelling of the NRAS Incentive shows that it can provide market rates of return at levels that are strongly competitive with other asset classes.
“Compared with a conventional residential investment property, in certain markets the NRAS Incentive can provide a better cash return to investors than the receipt of full market rent.
“In addition, investors are able to apply property expenses and non-cash deductions and allowances against a lower assessable rental income, increasing the negative gearing benefit.
“NRAS can counterbalance the risk and volatility of equity markets and assist in providing a balanced portfolio. It offers great flexibility, with investors encouraged to develop portfolios with diverse dwelling types across different locations.
“It is estimated that more than 1.5 million Australian households are eligible to rent NRAS properties.”
Income levels for eligible NRAS tenants allow for tenant salary increases of 25 per cent above the entry income limit.
For example, a couple with three children, earning a gross income of $108,169 per annum, is eligible to rent an NRAS dwelling. With the income increase allowance of 25 per cent, this family could earn up to $135,212 for two years before they become ineligible to remain in an NRAS property.
|Household Type||Entry income level ($)||Upper income level to maintain eligibility ($)|
|Sole parent with 1 child||62,943||76,679|
|Sole parent with 2 children||78,033||97,542|
|Couple with 1 child||77,989||97,487|
|Couple with 2 children||93,076||116,349|
|Couple with 3 children||108,169||135,212|
Key facts about NRAS, posted on the website include:
- NRAS dwellings are private property. No government holds caveats or claims over NRAS properties.
- NRAS homes can be bundled with non-NRAS properties: they may be only a minority of a new multi-storey development, with other properties sold off-the-plan to homebuyers and individual investors.
- NRAS dwellings can be sold without penalty during the 10-year holding period:
- a dwelling can be sold to another investor who undertakes to comply with NRAS obligations; or
- an equivalent dwelling can be offered as a substitute dwelling for the remaining part of the 10-year period.
- At the end of the NRAS 10-year period, properties revert to full control of the investor, who has no ongoing obligations to the Australian Government.
- Where dwellings are approved under NRAS, investors should be aware that this does not mean that the Australian Government endorses, guarantees or secures the investment in any way.
- The Australian Government has made a 10-year commitment to NRAS. The scheme is managed and regulated under the legislative framework provided through the National Rental Affordability Scheme Act 2008.
- In Queensland tenants must be chosen from a list centrally compiled by the Queensland Government.