NDIS property pros v cons
There's plenty of ways to be successful with property. Conversely, there's plenty of traps. The trick is knowing which is which.
In this article we'll take a look at the NDIS property approach.
The National Disability Insurance Scheme (NDIS) is an Australian Government-run program that was introduced in 2016 with the aim of improving the well-being of disabled Australians. Currently, the government estimates there are around 4.4 million Australians that live with a disability.
One of the key components of the NDIS is the Specialist Disability Accommodation (SDA) program. SDA housing is property that has been specifically designed to accommodate individuals that have high support needs or functional impairments.
Unfortunately, there is a severe shortage of suitable accommodation for this significant portion of Australians, so there is high demand to establish more suitable dwellings. As a result, the government has appealed to private investors by offering higher than average market rents and long tenancy periods.
Making an investment using the SDA program looks attractive on the surface. Look a little closer though, and this strategy has holes right through it.
The first big claim is the strategy will deliver high rental returns. However, this claim is already under the watchful eye of ASIC due to the multitude of companies making outrageous and unsubstantiated claims about returns of 20%+. The 'high' returns are based on achieving the highest possible government subsidy measured against the lowest cost build. But – to achieve the highest subsidy will require the most expensive construction and ongoing maintenance costs.
There's three key ways to establish a property that qualifies for SDA – modify an existing building, purchase a recent construction, or purchase a house and land package. Who's really making the money? The builders and the people hyping (selling) you the property and the strategy.
Once you get through the toppy hype about returns, this strategy takes a nasty turn. Check out the facts below.
Other key facts
- The government subsidy is not tied to you or the property – it's tied to the individuals who need the accommodation. If they leave – or worse – if you can't even attract the people who have the subsidy, then there's no government funding for you.
- If you're buying a property fitting this strategy – let's call it the NDIS strategy – you will need at least 40% deposit.
- The banks are very cautious if not completely avoiding this type of lending, so expect to jump through more than just the usual hoops to obtain a loan.
- Your loan will attract higher interest rates due to the higher complexity of maintaining the strategy and higher risk of achieving the government funding.
- If you think management fees for Airbnb is high, then you'll have a nasty surprise for the management fees of an NDIS property. And . .yes . . the management fees are left out of the 'high returns' discussion when marketers are selling the strategy.
- The cost to build the properties is much higher than a typical residential property due to the extra requirements such as larger doorways, non-standard kitchens and bathrooms.
- You can expect limited capital growth particularly for new builds as they're constructed in outer suburbs, and the oversupply of the NDIS properties located in areas where the SDA subsidy people don't want to live (because they will often need to live close to hospitals and established transport hubs).
- High vacancy rates – while there is high demand for NDIS properties, the bulk of the renting population doesn't need this type of property, so you had better plan for the property to be vacant for months instead of a few weeks.
- It's very difficult to exit this strategy if you start to feel the price pressure – very few investors are keen on buying property kitted out for such a niche group of tenants. Most investors will also avoid these properties due to the lack of ability to add value to an NDIS property.
- The time to build an NDIS property will be much longer than a normal residential property, but add to that 6-12 months to go through the government approval process AFTER the building is complete and you will find you have to cover expenses for an extended period of time before those 'high' returns come in.
- After all that . . the other tricky fact is this is a government scheme. And we all know government schemes can change without much notice, along with a slight change to compliance which could mean you won't achieve compliance in the first place.
What does this mean for you?
Of course, it's always your choice as to which strategy you will use. Just go in with your eyes wide open and don't sign anything until you have walked through the strategy from end to end.
Not sure which strategy is best for you? Book in for a clarity call here.
Author: Debra Beck-Mewing
Debra Beck-Mewing is the Founder and CEO of The Property Frontline. She has more than 20 years' experience in buying property Australia-wide, and is skilled in helping buyers use a range of strategies including renovating, granny flats, sub-division and development. Debra is experienced in identifying tailored opportunities, homes and sourcing properties that have multiple uses. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business. As a passionate advocate for increasing transparency in the property and wealth industries, Debra is a popular speaker on these topics. She is also an author, podcast host, Editor in Chief of Property Portfolio Magazine and participates on numerous committees including the Property Owners' Association.
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Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.