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How to finance an NRAS approved property
The tax benefits of a National Rental Affordability Scheme (NRAS) approved property may be tempting, but it's hard to buy one if you can't get finance first.
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If you’re thinking of purchasing an NRAS-approved property for your next investment, you may want to enquire with several mortgage brokers or lenders to see if you’ll be granted finance. Unfortunately, many lenders don’t accept any form of NRAS property as security for a home loan due to the lower marketability of the property, so you may need to jump through hoops in order to qualify.
What is the NRAS?
The National Rental Affordability Scheme (NRAS) is a government initiative that is designed to increase the supply of new rental properties and to improve rental affordability across the nation. It is aimed to resolve the shortage of affordable rental housing in Australia.
Investors who purchase or build rental properties under the NRAS receive rental rates below normal market rents. Typically, properties are rented out at 20% below the market value rent. In return, these investors (or NRAS applicants) receive an annual tax incentive for 10 years for each eligible property.
What is the NRAS incentive?
If you satisfy all NRAS criteria, you may receive the annual tax incentive either as a tax offset or a paid amount depending on your tax position. The incentive payment includes:
- A cash payment or tax offset from the Australian government, and
- A contribution per property as direct payment from state and territory governments
|NRAS Year 2019-2020|
Keep in mind that the NRAS incentive is only available to successful NRAS applicants who rent properties to low-moderate income households at a rate that is at least 20% lower than the market value rent.
Is it difficult to get finance for an NRAS property?
Qualifying for a home loan for an NRAS approved property is difficult in the Australian market. When a property is rented through the NRAS, it becomes more difficult to market or sell as there is a long-term lease registered on the title.
This means when the property is sold, the new owner must continue to rent the property through the NRAS in accordance with the terms on the lease. As a result, lenders are cautious about using the property as security for a mortgage.
Although you may be eligible to receive tax incentives, most lenders don’t take this into account when they are determining your propensity to repay the loan.
However, if you are borrowing up to 80% loan-to-value (LVR) ratio, then some lenders may take the tax benefits into account.
How much can I borrow?
The amount you can borrow for a NRAS approved property depends on the type of consortium or association that you use.
For most consortiums, including Affordable Housing Consulting Pty Ltd (AHC), Community Housing Canberra Ltd (CHC), Quantum Housing Group (QHG) and Urban Affordable Housing Consortium (QAHC), you can borrow up to 90% LVR. For other schemes and construction loans, you may only be able to borrow up to 80% LVR.
What kind of property can I purchase with NRAS?
The type of property you can purchase under the NRAS ranges from studio apartments to family homes that are in areas where affordable rental accommodation is in demand.
Will my lender know it’s an NRAS approved property?
Lenders can tell if a property you’re buying is part of the NRAS. They will see this from paperwork such as the title search, contract of sale or building contract.
How can I get finance?
Qualifying for a home loan for a NRAS-approved property is difficult as many lenders take a conservative approach to these types of properties. However, a mortgage or finance broker can help you access finance to buy a property leased through the NRAS.
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