Rent Scheme – Benefits Tenants and Investors?

The National Rental Affordability Scheme (NRAS) is set to help out some property investors in Australia as well as those who struggle to afford rental properties.

In an attempt to make renting more affordable for lower income earners the NRAS scheme gives tax free bonuses to investors who agree to rent out their property at 20% below market rent. The “market rent” is evaluated by independent valuers when the property is completed and every three years there after. It appears that the property has to be a new one to. Which is pretty silly when you think of it – aren’t they by definition the highest cost properties: wouldn’t a renter choose a new rental over the “second hand one” down the street if the price was equal anyway?

In fact the renter, if she was sensible, would choose a rental which was in an established suburb with good transport connections and facilities, rather than a min-MacMansion many miles from anywhere.

There are Homeless in Australia

The government grant is around $8000 year, tax free which is indexed to rise with the CPI. New properties also have deprecation tax advantages that existing properties do not have in Australia.

The government hopes that NRAS will supply 50,000 new homes across Australia by 2012. I suspect that these homes will come come courtesy of second-rate developments miles from anywhere – the slums of tomorrow, today.

There are some hooks in the fine print: only developments of at least 100 houses are being considered for the scheme – so this will create instant “undesirable” neighborhoods with few, if any, owner occupiers. The property must be rented for 10 years. What happens if the investor changes their mind in the meantime – can they sell? What will be the effect on the property’s value if it has to be sold with its “eligible tenants” in place?

It sounds like another case of buyer beware, make your property decisions based on sound fundamentals, not on the latest government grants and tax breaks.

Photo Credit