Demystifying the National Rental Affordability Scheme (NRAS) By William Buck on 08/06/13 - Mins to read: 3 minutes The National Rental Affordability Scheme (NRAS) is a long term commitment by the Australian Government in partnership with the States and Territories, to invest in affordable housing. The Scheme commenced in 2008 and seeks to address the shortage of affordable rental housing by offering financial incentives to private investors or entities such as the business sector and community organisations to build and rent dwellings to low and moderate income households at a rate that is at least 20 per cent below the market value rent. Therefore the investor receives 80 per cent of the market rent. Properties eligible for the NRAS have been developed by approved participants in the scheme. Approved participants are usually property developers, not-for-profit organisations and community housing providers and can be sourced through search engines or regular property purchasing channels. Benefits of NRAS 10 Years of Government sponsored tax free income. The NRAS incentive is currently $9,981 per annum (Indexed to CPI each year) which is made up of two components. The refundable tax offset which currently amounts to $7,486 (federal component) and will reduce any tax owing by the investor and be received as cash refund if the investor has no tax owing. The second component currently amounts to $2,495 and is a cash component received as tax free income by the investor and therefore not assessable income. (State based component) Incentive payable in full for vacancy periods of up to 13 weeks in any one year. In most cases properties under $500,000 offer the best benefits for investors as they can be cash flow positive. Investor can opt out of NRAS at anytime without any costs or penalties. Superannauttion funds are not restricted from investing in NRAS eligible properties Risks associated with NRAS Some banks are unwilling to lend against NRAS properties. Location of NRAS properties and quality of the property. (It is recommended to only buy NRAS property that would make a good investment even without the NRAS incentive attached) Eligible tenants are selected by the approved participant or their nominated tenancy managers not they property owner. (the property owner may retain a right of veto) Other considerations In year 1, 4 and 7 valuations are to be completed by an independent registered valuer (out of pocket expense). Valuations in remaining year are completed via a desktop valuation determined by the increases in capital city of the state you purchased. Consortium Management Fee is generally 10% per annum. This covers the consortium to audit and process your tenant and liaise with Government each year. NRAS properties mainly geared to tenants who are in the service industry, over 55’s low income earning families. Should the property not be tenanted for a period greater than 13 weeks in any one year the Government will cease payment to the consortium for that period. The 2012-13 household income eligibility limits To qualify as an eligible tenant for NRAS income limits must be met. Income limits are based on household types and are indexed annually in accordance with the Rental Component of the CPI. Household composition Initial household income limit ($) Existing tenant income limit ($)* One adult 44,835 56,044 Two adults 61,985 77,482 Three adults 79,135 98,919 Four adults 96,285 120,356 Sole parent with one child 62,028 77,535 Sole parent with two children 76,899 96,124 Sole parent with three children 91,770 114,713 Couple with one child 76,856 96,070 Couple with two children 91,727 114,659 Couple with three children 106,598 133,248 *If the household income of an existing tenant exceeds the indicated limit (25 per cent greater than the initial income limit) in two consecutive NRAS years, the tenant will cease to be an eligible tenant. This column indicates figures which are 25 per cent higher than the household income limits for ease of reference for this purpose.