Specialist Disability Housing (SDA) through the NDIS
“a win/win for Investors with significant social outcomes”
The National Disability Insurance Scheme has more than 400,000 participants and according to Productivity Commission analysis, the Australian residential property market requires new suitable housing for an estimated 28,000 of these NDIS participants. There remains a growing chronic under-supplied, with around 12,000 of those participants in immediate need appropriate accommodation.
Did you know that there are around 6,000 younger participants living in aged care facilities? Aged Care is not a place for young people and the growing need for aged care accommodation means 6,000 beds are being used by non-aged care participants.
Then there are those living at their parents’ home in unsuitable and often burdensome situations or with ageing parents unable to meet their needs adequately, or they are living in properties with unsafe or inappropriate design characteristics making an already challenged life even more challenging.
The current situation is broken and completely heart-wrenching creating unnecessary social and healthcare problems that need to be addressed.
We are thankful that Federal Government has listened to the plight of those with disability and in a bid to attract private investment into the disability accommodation market, the Federal Government has created a program referred to as Specialist Disability Accommodation (SDA). For the purpose of providing the opportunity for people like you and I to provide accommodations for those with disability in normal, but suited dwellings and for doing so as an investor you achieve a significant upside for putting your hand up.
To your tenant, you are a godsend enabling someone with disability to live as normal a life as possible in and amongst our communities and your reward in doing so includes a very high rental yield, indexed to inflation for a period of 20 years. As an investor when you run the numbers you will identify how this is a win-win investment where you have the opportunity of putting your hand up and doing good!
When you own a SDA Property, depending on which classification of NDIS your investment could return you from 7% pa up to 18% pa on yield alone. Keeping in mind that this investment is underwritten by Federal Law and your investment is protected for 20 years … where else can you achieve such significant returns on an investment with mitigated risk ensuring your investment is viewed at as a low risk profile over 7-10 years or more.
Considering the mitigated risks NDIS, many individual investors, including those with an ethical focus, will be attracted to the scheme simply because of the significant social outcomes it can achieve.
Who can invest in Special Disability Accommodation properties under the NDIS?
Anyone who has cash or can get a loan is eligible to secure a SDA Investment Property.
That includes you and I, or a company trust or even a Self Manged Super Fund (SMSF) wanting to secure an above market rate and regular income.
Does a Special Disability Accommodation property have to meet any regulatory compliance under the NDIS?
SDA provides the opportunity for individual investors to buy residential assets directly which will comply and be registered into the NDIS scheme. SDA compliance requires that these include the need for each property to be designed to meet compliance guidelines, then once built to be registered into the scheme through an approved SDA Provider.
The SDA Provider will liaise with Care Providers for the purpose of matching of properties with tenants. The property owner will thus have a qualifying tenant in the property and will thus give you the investor access to the Federal Government Funding set aside for tenants who have qualified.
What are some of the Investment Benefits of Owning a SDA Property?
Aside from doing an excellent turn by someone less fortunate than you in body …
With gross rental yields of between 7 – 18%, depending on the type of property, location, the design criteria category, and the number of tenants in each property, would be expected to be able to deliver investors very attractive cash flow.
If one invests this cash flow directly back into the property and where you have a loan, your loan can be paid off in less than *10 years.
Where there is no loan, your Return on Investment in the form of Rental Yield as stated above is significant and with a tenant in place is not only backed by Federal Government for a long 20 years your yield is Indexed to Inflation, meaning a higher income on the back of inflation increases.
Then there is also the potential of Capital Growth within your investment as an added attraction.
From a tax perspective you have access to reducing your income tax you would otherwise be paying to the tax man by claiming Depreciation on your Investment. Depreciation allowed could save you around *$8,000 – $12,000 per annum. This is significant.
What could the risk of investing in Special Disability Accommodation be?
Property type selection
A prudent investor will match the NDIS Category and the dwelling type to suit the income they are wanting to achieve in order to mitigate risk.
Properties under the SDA scheme vary depending on the style, scale and accessibility of the dwellings and number of tenants the property can accommodate. The SDA Categories include dwellings to suit basic, improved liability, fully accessible, robust and high physical support. The difference in the dwellings can attract a higher yield for investors.
Your research will help mitigate risk by discovering that 70% of NDIS applicants qualify for the Robust Category which also offers one of the higher rental yields. Therefore the type of SDA property, the category of tenant, demand within a given location and overall amenity of the housing location can all impact the returns an SDA property under the NDIS is able to generate on your investment.
By design, there are restrictions on the number of dwellings that can be registered within a particular location. This has been designed for the purpose of not oversupplying an area with too many SDA dwellings; which indirectly further mitigates the risk of your investment whilst also protecting your investment from an oversupply potential.
Based on an already incredibly high demand and tragic short supply, the industry feel that once you have a tenant in place, they will likely remain your tenant for long periods. Some SDA Providers look for long term leases of 5 years + 5 + 5 as a tenant who qualifies is desperate to secure their own accommodations and will hold onto it dearly once secured. This in itself is ideally suited to the risk averse investor.
SDA providers will use a variety of models in sourcing and maintaining tenants. Including direct liaison with Care Providers, engaging specialist SDA tenant matching agencies; entering head lease agreements with SIL providers on your behalf and/or appointing specialists SDA agencies to manage tenancy sourcing and maintenance on an ongoing basis.
Be mindful that there are no guarantees provided by the NDIA should an SDA provider be unable to find (or retain) a tenant with SDA under their NDIS package. However again based on high demand and low supply and working with a qualified SDA Provider with skin in the game the industry feel that securing tenants will occur. On losing a tenant, your investment is covered for up to 90 days under Federal Law with a continuity of payment between tenancies. Not applicable in the initial stages of securing your first tenants for a new SDA registered dwelling.
SDA scheme compliance and registration risk
You do not want to end up with a property that is not complient in design or build and thus unsuited to meet strict NDIS requirements meaning you are ineligible to secure NDIS Rental Subsidies from Government as your investment (dwelling) is unsuited to house a tenant who qualifies under the NDIS.
NB: Ensure you work with a team of professionals who will deliver on all variables. Not everyone out there has your interest at heart. Be aware.
To avoid the risk of not being able to ensure your investment complies and is built to SDA standards; it makes investment sense to mitigate this risk and work with a team purposefully set up to ensure each step complies from design, to construction to securing tenants. Working with a professional team such as properT network who have these professional relationships firmly in place will further mitigate your investment risk.
Risks associated with SDA payments
The prices paid by the NDIA for SDA housing are set by the NDIA and reviewed periodically. The SDA Rule states that the prices can be reviewed annually in line with CPI.
There is a risk that the NDIA could change the payment amount and/or frequency of SDA payments in the future. Although the NDIA has outlined that new dwellings will receive payments at the “new build” level for 20 years and then for a further 20 years at the “existing stock” level, it has also stated these payments will be reviewed each 5-years.
Whilst it seems that the NDIA recognises the need for certainty surrounding SDA payments and should take a position to “grandfather” payments at the levels that were paid when a particular dwelling was registered, there can be no certainty that this will be the case.
SDA Property Investment can represent as an excellent opportunity to make a positive impact on people less bodily fortunate than us whilst achieving above market investment returns. This is a feel great, win-win investment opportunity with incredible positive and significant social outcomes.
SDA is not without it risks however and although those risks seem to have been appropriately mitigated as described above investors need to be informed and aware of the initial potential for a period of vacancy and the potentially high capital costs of “getting it wrong”, in terms of meeting market demand in any given locality or in securing a non-complient dwelling.
These risks can be mitigated by ensuring that you work with a team of professionals who will inform you, educate you and who can hold your hand from sourcing the property through to the property being complient and tenanted ensuring all strategic partnerships are firmly in place prior to your commitment to the investment is made.
SDA Price Guide
The NDIS link below will provide an overview of typical SDA pricing across a number of design categories and dwelling types (for new builds). The SDA pricing indicated (and in the SDA Pricing Guide) is on a per resident, per annum basis. https://www.ndis.gov.au/providers/price-guides-and-information
The SDA Price Guide is a summary of NDIS prices that apply for SDA and is publicly available from the NDIA website. It sets out the current pricing for SDA payments across different dwelling categories and types; and occupant numbers. For a comprehensive understanding of the scheme, the SDA Price Guide should be read in conjunction with a number of other documents, including the SDA Rules, the SDA Operational Guidelines, the SDA Guide to Suitability and the NDIS Terms of Business for Registered Providers, which are all publicly available from the NDIA website.
For more detailed information on NDIS Property / SDA Property click here