NRAS, Rental scheme benefits landlords and tenants
The article below is courtesy of the SMH.
- August 27, 2012
It is a win-win situation: developers and investors make money from providing social housing.
A government initiative exists that allows developers and investors make money from providing social housing, while low-income renters receive the benefit of quality accommodation at a cheaper price.
The National Rental Affordability Scheme, set up by the Rudd government in 2008, offers tax-free financial incentives to build and rent dwellings to poorer households at rates below market value for 10 years. It creates a new residential asset class for property investors.
Eligible participants include financial institutions, investors, private developers, not-for-profit organisations and local governments. They may build, own, finance or manage the NRAS dwellings.
One participating company, My NRAS Property, which has an education and real estate role in the process, has just sold its 10th property. ”We have been going since the start of the year and are slowly building momentum,” the company’s head of investment, James Thorpe, said.
The company’s role is to educate clients about NRAS, usually through seminars, and help them select the property that suits their requirements. It is akin to that of a normal real estate agent in that it makes the sale and takes a small percentage of the sale price as income.
The properties sold by Mr Thorpe’s company range in value from $250,000 to $500,000. Towards the inner city they are apartments, but further out they are house and land packages. ”They are in a variety of places, such as North Melbourne, Box Hill, Geelong, Preston and Ballarat,” Mr Thorpe said.
Each state has several companies involved in the $1 billion scheme, which aims to add 50,000 affordable rental dwellings to the market. It is managed by the Department of Sustainability, Environment, Water, Population and Communities.
The dwellings must be rented to low or moderate-income households at least 20 per cent below market rates. For the investors and developers, the annual incentive is tax-free income, indexed annually and complemented by other benefits such as depreciation.
The incentives include annual payments of $7143 and $2381 per dwelling from the federal and state governments respectively.
Mr Thorpe said the benefits of investing in an NRAS-approved property were varied. They include an increase in income, potential for big capital gains, negative gearing benefits and positive cash flow at the same time, tax-free income and tax offsets indexed for 10 years, and tax deductions on interest payments and depreciation.
Investors can earn at least $109,228 in tax-free income from government incentives for every property bought and held for 10 years.
”You have flexibility, so you can opt out of the scheme at any time,” Mr Thorpe said.
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