FINANCIAL PLAN BUILDING BLOCKS
Fact Sheet – NRAS
Property
Summary of
investment type |
NRAS = National Rent Affordability Scheme This is a scheme of the Australian Federal Government
described as a long-term commitment to invest in affordable housing. The
scheme involves an annual tax free Incentive (currently $9,524) per dwelling,
and is indexed each year to the rental component of the CPI. NRAS properties
must be brand new and they must be rented to low – moderate income earners
for at least 20% below the market rate. |
Benefits |
Tax-free incentive: Investors can
potentially benefit from capital gains, rental returns and the tax-free
incentive payment. Gearing: While other investments can also be
funded by borrowed funds, many people are comfortable borrowing to invest in
property, where they may not be comfortable borrowing to invest in other
asset classes like shares. Depreciation: As the buildings are new, you
will be able to claim 2.5% of the building cost as a ‘capital allowance’ each
year and you will also be able to claim depreciation on fixtures and
fittings, which will improve the cash flow of the investment. |
Historical
Returns |
Rental yield on a $480,000 property rented at $395/week is
4.2%p.a. (before expenses) Capital Growth (last 30 years) has been 7.8%p.a. average |
Future Returns |
Rental yield on a $480,000 property rented at $395/week is
4.2%p.a. (before expenses) Capital Growth in the future will depend on many factors,
the major ones being: - Wages growth (which will intern be affected by economic
factors – local and international) - Interest rates - Supply of new land The normal range of 10 year returns (from capital growth)
would be 0% on the low side and 15%pa on the high side with an average of 7 –
8% p.a. but returns outside this range are still possible (though unlikely) |
Risks |
Property (like all other growth investments) has an
element of risk The major risks are: Tenancy risk; you could have bad tenants, or
you could have a period without tenants, which could give you a cash flow
crisis if you are not well prepared Risk to capital; while the
property market (Perth) has done very well for the last 30 years, there is no
guarantee that this will continue into the future. Over the next ten years,
property may outperform or underperform other investments and the inflation
rate. Realise that property markets can and do
crash (think USA 2008) on occasion Interest rate risk; this is one of
the major factors. If interest rates doubled from their current level, then
house prices would struggle to rise in that environment (all other things
being equal) |
Opportunity |
NRAS property (like all property) in Perth may benefit
from the resources boom, but booms can also bust, so it is important to be
realistic. The NRAS tax-free incentive (TFI) payment can mean that a property
which is negatively geared (i.e. the rental income is lower than the interest
expense) can still be cash flow positive due to the TFI. Cash flow positive
investments do not put a strain on your ordinary income as you do not need to
fund a deficit create by negative gearing. |
Location |
NRAS property credits are provided to developers. The
properties (with NRAS attached) are available all around the country.
Specific advice regarding location to buy etc, can
be provided by a property expert (a buyer’s advocate). Let me know if you
would like to be introduced to such an expert. |
Getting Invested |
I can put you in touch with a property buyer’s advocate.
These people are similar to real estate agents, but unlike real estate
agents, they work for you (the investor), not for the seller. They will be
paid an commission by the developer, so you do not
have to pay them separately for their service. |
Getting Advice |
As with all investments, you can go down the DIY route, or
you can ask a Financial Adviser for assistance. If you would like further
advice as to the suitability of an NRAS property investment to helping you
reach your financial and lifestyle goals (among your
other alternatives) please let me know and I will be happy to help. The
buyer’s advocate may pay me an introduction bonus, so my services may also
not cost you anything as I am happy to offset my fee against any payment I
receive from the buyer’s advocate. |
For more
information or to discuss further, call Paul Hodson (08)6102-6532.