NRAS Loans

NRAS stands for the National Rental Affordability Scheme that has been developed by the Australian Federal Government to aid investment in affordable rental housing. As there is a chronic shortfall of affordable rentals for low to moderate income households, the NRAS scheme has been designed to assist these low to moderate income households to obtain affordable rent. There are some additional requirements for NRAS loans.

NRAS Loan Options & Features

NRAS loans are considered higher risk by Australian banks because they are investor orientated. This means they will usually only be resold back to investors should the loan fall into arrears. Because of this, there are only a few banks willing to lend over 80% though the mortgage insurance can usually be added. Features and options available on NRAS loans are the same as for other types of home loan.

How Does The NRAS Scheme Work?

An NRAS approved property must have its rent reduced by a minimum of 20% below the prevailing market rent. When calculating this number items such as tenant demographics are included. This means the rental income is lower than for a privately rented house. However, for the investor, the NRAS scheme also provides several valuable tax incentives:

Ten years of annual tax free income – in 2015, this amount is $8,188 (Federal) and $2,729 (state): a total for 2015 of $10,917

However, the NRAS incentive is not automatic and must be applied for (with a consortium administering the scheme).

What Is The NRAS Tax Free Incentives & How Do They Work?

The NRAS incentive is not automatic and must apply to have a consortium to administer the NRAS scheme on behalf of the tenant to be approved under the NRAS scheme. Each bank has its own restrictions on the consortiums approved, so it is important to ensure that the consortium you use is on the list of approved consortium maintained by your lender.

What Are The Advantages & Disadvantages Of NRAS Over A Non NRAS Investment Property?

The advantages for investors of an NRAS property are:

  • Depending on your tax bracket the property could result in better cash‐flow than a non‐NRAS property due to the tax incentives
  • Additional tax incentives
  • Negative Gearing benefit is increased
  • If vacancy levels increase you have a point of difference above other non‐NRAS investment properties competing for tenants in this lower household income bracket

Of course with any investment there are also disadvantages with the NRAS scheme, such as:

  • Some banks are unwilling to lend against NRAS properties. Of the banks that do allow NRAS home loans, they restrict the percentages they will lend, making finance harder to qualify for.
  • Dealing with a lower income social demographic of tenant which can increase risks associated with the treatment of your property, wear and tear, payment of rent and other related factors in this demographic.
  • Geographically limited to certain developments where NRAS has been approved which can impact on potential capital gains compared with other locations. For example lower income households are limited by affordability and as such would not be able to afford rent in areas of high demand with key infrastructure, schools, proximity to city etc.

Always consider the advantages and disadvantages before investing in an NRAS property. You should seek tax advice from your accountant, so that the exact tax benefits to you can be calculated. The value of investment will ultimately be decided by your individual tax position, rental income, and cash flow.

With our access to lenders willing to loan up to 92% of value (with mortgage insurance included), we can help to ensure that your cash flow is a positive toward an NRAS investment. Contact us today to learn more about the NRAS scheme and to benefit from an independent review of your position.

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