What is NRAS?
The National Rental Affordability Scheme (NRAS) is an Australian Federal Government initiative that provides Tax Free Cash Incentives (currently $10,661) indexed annually for 10 years to certain residential property investors.
Overview of NRAS
With rents to grow at approximately 4% – 7% p.a. over the next two years for most cities, mainly due to lack of building new dwellings, treasurer Wayne Swan launched the NRAS scheme in July 2008.
It is estimated that the upper end in rents will stay flat or fall while the middle and lower ends are expected to grow significantly. The shortage of houses across Australia in 2008 has been estimated at 85,000 and possibly increasing to 213,000 by 2013.
Background of NRAS
The National Rental Affordability Scheme or NRAS was launched for the purpose of providing assistance and funding to increase the supply of affordable rental dwellings, reduce rental costs to low to mid income earners and to encourage investment on a large scale to provide more affordable housing.
NRAS is expected to deliver up to 50,000 affordable rental homes by 2014.
If the investor reduces the rent by 20 – 25% (may vary) of the market rent, the government will provide an incentive of $10,661 per annum ($7,996 from Federal and $2,665 from the State governments). This payment increases in line with CPI and in 2014/2015 it is $10,661.
Eligible tenants are determined on an income basis with the service industries such as police, teachers and nurses targeted as potential tenants.
Why NRAS Is Not Social Housing
A family can enter as a social housing tenant earning up to $58,292 whereas an NRAS tenant can earn up to $125,960. NRAS is geared to key workers (service industry), over 55s and families.
With NRAS there is control with tenant selection. Advertising for tenants is as in any other normal tenancy arrangement. With social housing there is no control over the rental rate charged- the government subsidises the rent and sets the amount, whereas with NRAS the rental rate is set by the market rent and is valued by an independent valuer.
Benefits of NRAS for Investors
Improved Rental Yields•
The minimum annual $10,661 National Rental Incentive for each rental dwelling will improve rental yields over • conventional residential investment properties.
Reduced Risk Profile
With rents at 25% below market value and a large pool of eligible tenants, investors can expect reduced vacancy risk.•
With rents at 25% below market value investors can be more selective in their choice of tenant. •
Certainty of contributions from the Australian and State governments for a period of 10 years.•
Government Subsidised Property Investment•
Secured Income Stream (10 Years)•
Cash Flow Positive Investment •
Maintained and Managed•
$100,000 Plus Tax Credits Over 10 Years•
The national Rental Incentive is income tax free, indexed to the rental component of the Consumer Price Index (CPI) and is • complemented by existing taxation arrangements including depreciation.