NRAS lures private players to homes market

WESTERN Australia hopes to snare a larger portion of funding in round two of the federal government's National Rental Affordability Scheme after receiving 401 homes in round one, which was announced in March.

The NRAS is an incentive to attract private investors to the residential market in a bid to build 50,000 new affordable rental dwellings for low- to middle-income earners by June 2012.

Costing $623 million over the first four years, the scheme was launched last year in response to the deteriorating economic climate and lack of affordability in the rental market.

After a 2008 study found that Australia was facing a shortfall of 420,000 properties by 2023, the federal government combined with state and territory governments to offer incentives to institutional investors and housing providers to build properties to be rented out at 20 per cent below market rate.

The government inducements are based on $8,000 per annum in tax-exempt incentives to owners of approved dwellings for 10 years, subject to consumer price index increases.

Under the first round of NRAS, the federal government has announced funding for 3,900 new affordable rental properties for low- and middle-income earners, of which 401 were allocated to WA.

Significantly, buyers cannot go directly to the government to seek approval for the scheme on properties, with the only avenue available through those organisations with an approved allocation such as Niche Living, Amana Living, The Affordable Housing System Group Unit Trust, or the Questus Residential Investment Fund.

Niche Living, in conjunction with ASX-listed Applecross-based fund manager Questus, has approval for 92 properties in areas including Langford, Armadale, Kelmscott, Beechboro and Ballajura.

Questus developed a managed investment scheme to be able to participate in NRAS, ultimately enabling individual investors to receive the new national rental benefits.

Questus executive chairman David Somerville said NRAS tax-exempt benefits provided cash-flow positive investments in direct property.

"The difficulty is that, generally speaking, corporates and institutions have never been strong investors in residential property purely because the yields are not there and the economic drivers don't work like it does for an individual investor," he said.

"If you look at the traditional method that the government has used to provide housing it's been through direct ownership, whether it is through community or social housing, where the government entities actually own those properties.

"When you look at the intention of NRAS, the government is allocating $623 million to provide an incentive for 50,000 properties and if the government was actually to build them, for $623 million you would only be able to build 2,000, so the government is getting more use out of its capital."

Australian Property Alliance director Paul Bitdorf, who is also managing director of Niche, said it was a huge opportunity for single investors to take advantage of a market which had traditionally only been available to larger investment institutions.

"On the upside for renters, we believe there will be a waiting list of potential tenants willing to take up the rental properties on offer at 20 per cent lower than the market rate," he said.

Mr Bitdorf said while the economic downturn had initially deterred many private investors from entering NRAS, he was confident the scheme would gain momentum as more affordable homes were constructed.

"I don't think that in today's reality there will be enough construction to supply the 420,000 homes [by 2023] that is needed because the construction industry has slowed down so much," he said.

"But we will do everything we can to get as many approvals as we can but the process is quite strict."