What you need to know before investing in NDIS housing
There are many things you need to know before considering NDIS housing investment.
Whether you are an investor, developer or builder, it is important to educate yourself about the NDIS and specialist disability accommodation (SDA) investment before buying land or building. Otherwise, you can find yourself with a vacant property and not making the returns you expected.
NDIS SDA investment offers great potential rewards but is different to mainstream residential and commercial property investment.
In this blog we will look at the types of SDA housing investments available, the pros and cons of SDA housing investment, the regulations and rules regarding disability homes investments, as well as tips for maximising SDA property investment returns. This information will help you to decide if investing in NDIS housing is right for you.
What is the NDIS and how does Specialist Disability Accommodation tie in?
The National Disability Insurance Scheme or NDIS is a government scheme that provides funding to some Australians with a disability to improve their quality of life and achieve greater independence. It also connects anyone with disability to community services.
Specialist Disability Accommodation or SDA is specific NDIS funding for purpose-built housing for people with extreme functional impairment or very high support needs.
SDA funding cover the bricks and mortar. It is separate to Supported Independent Living (SIL) funding from the NDIS which helps people with a disability to live in the home. SDA funding is paid directly to SDA providers (property owners) to cover the building and maintenance costs. NDIS participants – the residents of the SDA housing – pay a reasonable rent contribution and other costs such as electricity bills.
It is important for people considering NDIS housing investment to realise that SDA funding is only available to around 6% of all NDIS participants. And while the funding is paid to SDA providers, it follows the NDIS participant or resident. If a resident moves out, funding payments stop.
Is NDIS housing in demand?
NDIS housing is in demand, but demand varies across Australia and across the different types housing for people with a disability.
A growing number of people are demanding new SDA housing for which there still is an overall shortage of appropriate supply. Governments are helping people with a disability to move out of institutions, hospitals and aged care facilities so they can live more independently in communities. Adult children with a disability are wanting to, or their parents want them to, move out of the family home to experience and enjoy more independent supported living.
In addition to the unmet demand for new NDIS housing, there is a need to replace old stock with modern SDA homes.
Like other forms of housing, demand for SDA housing changes over time and is influenced by the supply. The National Disability Insurance Agency, which runs the NDIS, provides a range of reports and other data on demand for NDIS housing and specifically SDA housing. It has an interactive tool with SDA demand data for people considering NDIS housing investment.
Recent NDIS SDA housing data reports show:
- there has been an increase in the number of people with SDA supports – 15% annually over the last three years, reaching 22,479 by November 2022
- the average plan budgets for SDA supports have also increased by around 11% a year, leading to an increase in total SDA supports in participant plans by around 28 % per year, from $144 million in September 2019 to $306 million in September 2022
- total SDA payments increased by 45% and average SDA payments per participant increased by 24% between 2019 and 2022
- demand is highest for Improved Liveability category homes
- the supply of SDA housing continues to trend upwards, particularly for High Physical Support category homes
- the total number of enrolled SDA dwellings in September 2022 was 7,334, up by 773 dwellings (12%) on the year before.
What are the requirements for SDA housing?
There are specific requirements for SDA housing in terms of eligibility for SDA funding and the design and operation of SDA homes.
Here is a summary of the key requirements people considering NDIS housing investment need to know about.
- The key requirements and obligations for SDA are outlined in a document called the NDIS (Specialist Disability Accommodation) Rules or SDA Rules.
- The SDA Design Standard outlines design requirements for each of the four SDA design categories – Improved Liveability, Robust, Fully Accessible and High Physical Support. SDA properties also need to meet the requirements of the National Construction Code.
- All prices that apply to SDA are summarised in the NDIS Pricing Arrangements for Specialist Disability Accommodation (formerly called the SDA Price Guide).
- To rent NDIS investment properties, you must be registered through the NDIS Quality and Safeguards Commission to enrol in special disability accommodation. This includes submitting information related to the location, design category, building type and the number of bedrooms, bathrooms and living areas.
The approval and regulatory requirements for SDA housing are complex. People looking at how to invest in NDIS housing need to know these requirements or work with an SDA provider who understands them.
The good news is that the requirements are clearly set out and freely available from the NDIS website and other government websites.
Who can invest in NDIS housing?
Anyone can invest in NDIS housing, or more specifically SDA housing.
Property developers, builders, property investors, superannuation funds, social impact funds and even mum and dad investors are undertaking NDIS housing investment.
SDA housing investments are generally best suited to people looking for longer term investments, with 20 year horizons.
How do NDIS housing investors earn a return?
NDIS housing investors with a registered SDA dwelling earn a return in two ways. They receive SDA payments from claiming SDA funding from a participants plan as well as a reasonable rent contribution from the resident.
Remember that while the NDIS makes SDA payments direct to the SDA provider, the funding is contained to the participant’s plan, not to your property. So, you only get paid for what the resident is funded for, and this is not always aligned to the SDA Pricing Arrangements (SDA Price Guide). Price limits vary by SDA dwelling type too. If the resident moves out, SDA property owners no longer receive that funding or their contribution.
The reasonable rent contribution paid to you by the resident. Payments are fixed at:
- 25% of the person’s disability support pension, supplement payment and
- 100% of any Commonwealth Rent Assistance for which they are eligible
Pros and cons of investing in NDIS housing
Emerging market with good returns
SDA housing investment is an emerging market with enormous potential to provide very good returns, particularly in the long term. There is strong and growing demand for NDIS housing and a shortage of supply in some locations in certain categories.
Make sure you understand the locations where demand is strong and for which types of housing. The NDIS provides demand data, or an experienced SDA provider will know that information.
Ethical and socially responsible investment
By investing in NDIS housing, you are helping Australians with a disability to live more independently, with increased social and economic participation in the community. To get inspired, the NDIS and SDA providers have stories about how NDIS housing and SDA housing changes lives for the better.
Federal Government-Backed Funding
Once and NDIS investment property is approved, this funding is backed by the Federal Government providing a safe and secure income stream. This depends upon the investor finding a funded participant who wants to rent the property though.
You can sell your Specialist Disability Accommodation investment property already established or re-convert it to a regular residence down the track. So there are options if you wish to no longer undertake NDIS housing investment.
NDIS housing is specialised property investment
NDIS housing investment is specialised and highly regulated. The different SDA design categories can be limiting in terms of attracting a broad range of potential renters and for sale of the property down the track.
Make sure you understand the rules and guidelines regarding the NDIS and SDA housing before you dive in.
Returns can be volatile and slow
While SDA payments are made by the NDIS, that is only when a tenant with approved NDIS funding for SDA is living in the property. It can take time to fill a vacancy particularly if the location is wrong or the market saturated. Some investors have reported payments being slow or are surprised by the length of time it takes for NDIS participants to be approved for SDA funding. The current payment method utilised by the NDIS also has flaws which sees inconsistent claiming which impacts on cashflow for property owners.
If you are relying on regular payments to meet the mortgage, SDA housing investment may not be for you.
Make sure you have a property in a location and a category which is in demand.
Home in Place helps its SDA investor partners minimise payment delays and vacancy rates by matching them with funded residents either before building begins or well before completion.
Resident compatibility and equipment needs
One of the reasons payments can be slow is that it takes time to get a resident comfortable moving in. In NDIS housing where there is more than one resident (group home), resident compatibility is a big issue.
Many SDA housing residents require specialist equipment and delays to its arrival or installation can delay the move-in date and rental payments. Home in Place works with investors to help find residents well before property completion and anticipate issues related to equipment needs as early as possible.
Changes to the NDIS
While the NDIS is here to stay there are current concerns with the cost and sustainability of the NDIS. Government schemes and their regulations and funding arrangements can change, and you may find it challenging to find a buyer for the dwelling down the track.
Look at NDIS investing as a long-term option. Consider resale options and alternative uses when selecting your location and SDA build type.
Land Approval and NIMBYISM
Although you can build SDA housing anywhere in Australia, building any property is generally subject to local Council approval processes. Land approval may be an issue where there are restrictions on the number of dwellings.
There is also some community fatigue and opposition, often unjustified, to SDA housing. A case of “NIMBY” – not in my backyard.
Check planning requirements and community issues with SDA housing before you purchase land. A good SDA Housing Provider will have its finger on the pulse of these issues too.
Are there any grants available for NDIS housing providers?
There are no grants available for people considering NDIS housing investment to build SDA housing.
There are sometimes grants available to NDIS Supported Independent Living (SIL) providers and housing providers to support modifications to properties. For example, a Supported Independent Living provider obtained a DSOA grant to have soft floor matting installed at a property Home in Place manages to allow residents to get more and safer use out of an area of a backyard.
How do NDIS investment loans work?
NDIS housing investment loans work much the same as other property investment loans.
Australian banks do lend for SDA housing, but some lenders are more willing than others. A good deposit and credit history and credit score will improve your chances of qualifying for an SDA investment loan. Lender’s Mortgage Insurance is not available for NDIS housing loans so the loan to value ration (LVR) cannot be more than 80%. It is generally between 60% and 80%. Meaning you will likely need at least a 20% deposit.
As well as investment loans, banks also offer other loan products in the SDA market such as home loans for participants, shared equity loans for participants and families, and commercial loans for Community Housing Providers and other SDA providers (with mezzanine finance in some commercial loans).
If you are considering NDIS housing investment, seek specific advice from a financial planner or accountant on the best loan for you. Shop around various lenders or use a broker to find the best loan conditions and interest rate for you.
Five final things you need to know before investing in NDIS housing
1. This demands the same due diligence as other property investments
Choosing to invest in NDIS housing requires the same, if not more, due diligence as any other property investment.
The Australian Securities and Investments Commission has warned Mum and Dad investors to be wary of investment firm schemes promoting great returns on NDIS housing. They are generally not government backed but some investors are led to believe this is the case.
2. NDIS funding is linked to the participant as opposed to your property
As is the case with other residential properties, you don’t get rental returns unless you have a tenant. In the case of SDA housing, the person renting your home must be an NDIS participant who has been approved to have SDA funding in their NDIS Plan.
While owners receive direct SDA payments from the NDIS from this funding, the money is tied to the participant, not your property. SDA funding serves is for people with disabilities, not to subsidise landlords who have chosen to invest in NDIS housing and built an SDA property.
3. You can purchase an existing SDA property or modify an existing home to meet the criteria
While you can purchase an exiting SDA property or modify and existing home to meet SDA criteria, the most likely option for people looking to invest in NDIS housing is to build a new property.
The reality is there are not that many SDA properties for sale. While building a new SDA home is expensive, more expensive on average than a standard residential home, the cost of retrofitting an existing property can be difficult and costly. If you don’t get it right, your property will not be approved or enrolled as an SDA property.
4. You’ll need to pay income tax on rental income
You will pay income tax on SDA rental income as you would on other rental income. But you will also be able to claim various investment property tax deductions for things such as interest payments on any loan for the property, rental expenses and depreciation.
With SDA housing, your claimable depreciation deductions are likely to be higher than a traditional investment property because building costs and plant and equipment requirements are higher. Ask a qualified quantity surveyor for a tax depreciation schedule to get the most out of your tax deductions.
5. Your SDA property must meet specific standards
There are four types of SDA housing which all have specific design category standards – Robust, High Physical Support, Improved Liveability and Fully Accessible. Before you can rent SDA housing investments you have to enrol them with the NDIS and prove they meet the specific standard.
So, is NDIS housing a good investment?
The answer to the question “Is NDIS housing a good investment?” will depend on your objectives, financial situation and investment goals.
NDIS housing can be a good investment if you have a property in a good location, in a design category that is in demand in that area and is built to the right standard.
Strong demand in this growing area is driving good returns for some people who have chosen to invest in NDIS housing. When considering NDIS housing investment, beware of investment schemes exaggerating demand and overpromising returns and areas where there is saturated investment.
The property must be desirable by offering a floor plan that has the participant in mind and be functional and operational for a Supported Independent Living Provider (SIL). Often there is a lack of storage and living space with off the plan SDA investments sold by developers. This can impact the return on investment. It is often too late for investors to do anything about design flaws as the build has progressed too far before a SDA Provider has been engaged on the site.
EXAMPLE OF POTENTIAL RETURN (AS PER THE NDIS WEBSITE)
If you’re building a house for three residents requiring high physical support, SDA compliant property in Hunter Valley, NSW with fire sprinklers and on-site overnight assistance.
|Annual Maximum Reasonable Rent Contribution
|Annual Income (per participant)
|Annual Income (per room)
|SDA Single (one SDA participant in a room)
|SDA Share (one SDA Participant shares a room with a non-SDA participant)
Returns on SDA housing investment can be slow and sporadic at times. If you are relying on SDA payments to pay the mortgage on a NDIS housing investment, then this may not be the best property investment for you.
SDA housing investment does not suit developers who wish to buy large tracts of cheap land on the fringes of cities and suburbs to create house and land packages.
Partner with a Disability Accommodation Provider
The NDIS and SDA housing can be complex. People considering NDIS housing investment can benefit from partnering with a Registered Disability Accommodation Provider.
A good SDA provider will have extensive knowledge of, and help investors to understand the NDIS, the SDA market and locations and housing types where there is demand and good possible returns. They will also be able to enrol your property with the NDIS and offer ongoing property and tenancy management services. Read our blog on what makes a good SDA Registered Disability Accommodation Provider.
Home in Place is one of the largest and most experienced SDA providers in Australia, managing more than 1,500 tenancies. A Tier 1 Community Housing Provider, it is also a registered Specialist Disability Accommodation (SDA) provider in all States and Territories in Australia and with the NDIS Quality & Safeguards Commission.
Home in Place has been providing housing to people with a disability for 35 years. It is a member of and has strong partnerships with many Supported Independent Living (SIL) providers and other disability support providers.
It is part of the consortia which won the NSW Government contract to build and provide ongoing property management for new 66 new SDA group homes for people with a disability who were previously living in institutions. It also successfully took over the tenancy and property management of more than 1,100 other SDA places from the NSW Government. It provides fee-for-service SDA property and tenancy management services for organisations and individual owners of NDIS housing.
Home in Place’s person-centred approach to SDA housing, focusing on the NDIS principles of choice and control as base measures, helps people considering NDIS housing investment to achieve better returns. It helps to match investors with people who are seeking specific SDA housing rather than investors taking a build it and they will come approach.
It has a team of SDA tenancy relations, customer service and maintenance officers. Given the vulnerability of residents in SDA housing, Home in Place has a high priority maintenance program with a 24/7 maintenance phone line and uses local contractors with a good understanding of working in disability housing properties.
Whether you are looking to undertake NDIS housing investment in Victoria, NSW, Queensland or South Australia, the team from Home in Place can help. Call us on 1300 333 733, email [email protected] or contact us HERE.