Property developers are banking on a government-backed funding and rental guarantees to be a safe bet as construction and labour costs continue to rise.
The Federal government has committed to stimulating private investment in the Specialist Disability Accommodation (SDA) sector by providing rental income, meaning investors can receive a steady income—and make a positive social impact.
In all, the government will pay up to $700 million a year to providers of SDA as part of the $20 billion spent annually under the National Disability Insurance Scheme (NDIS).
Specialist disability accommodation supported through the NDIS refers to houses built with modifications necessary to make them more accessible to those with chronic or severe medical conditions, mobility issues, visual impairments or psychological disorders.
And amid volatility in the financial markets, there has been a surge in the number of properties built for the NDIS, suggesting that developers hope that the government program will provide some economic shelter.
Figures show that the total number of participants in specialist disability accommodation funding through the NDIS has risen from 15,667 in December 2020 to 23,451 in December 2022, a 50 per cent increase in two years.
Disability accommodation
The introduction of the NDIS and Specialist Disability Accommodation in 2013 created a vehicle for financing SDA constructions and increased investors’ interest in housing projects that attract government funding.
As of September 2022, 534,655 participants are enrolled in the NDIS, and 20,920 of these meet the criteria for Specialist Disability Accommodation funding. The essential criteria to access this funding is that participants should have an extreme functional impairment or high support needs.
Data from September 2002 NDIS quarterly report reveals that 3419 participants in an SDA home are seeking an alternative residence, while another 1559 participants not in an SDA home are seeking a vacancy.
Meanwhile, the National Disability Insurance Agency is preparing to issue grants of between $80,000 and $400,000 for projects that test and evaluate different models to provide participants with information, assistance and connections about home and living options in a bid to increase independence among residents.
It will hand out up to $1.5 million in grant funding over the next two years as part of the program, with applications closing on 20 April, 2023.
Funding pipelines open up
Institutional investors including Macquarie and Goldman Sachs have also been rushing to secure some of the cash flowing into the sector, while a handful of property investors have mushroomed up in a bid to capitalise on the guaranteed funnel of cash destined for the property sector.
NDIS Property points to a fast-paced market emerging with new land releases often selling out in a less than a week.
“Developers may now require pre-approval letters or a broker qualification letter with an EOI. In some cases, they may also require larger deposits of $5000,” according to its website.
The market specialists have development sites in the Moree, Punchbowl and Wauchope in NSW, and four further sites earmarked for development in Queensland.
It points out that while the space can be lucrative, the process of NDIS and SDA property investment is not straightforward and involves eligibility criteria.
Yields in the SDA sector can be as high as 10 to 15 per cent and are well placed for maximum capital growth, director and group head of acquisitions at Melbourne-based Apollo Investment, Nicholas Logan-Alessio says.
The state of the economy and the rising cost of living is driving strong enquiry as market players look for safer rabbit holes to stash their investment dollars.
Demand for these properties is strong nationally. However, he says that there had been development hold-ups of up to 15 months for stock to hit the market, mirroring delays experienced in the residential sector.
“In Australia, there are currently over 45,000 people with a disability who are looking for accommodation to suit their needs and there are simply not enough properties to meet their needs,” Logan-Alessio says.
While there is strong demand for NDIS properties nationally, he warns that some areas are oversaturated by builders and investor groups chasing a quick buck.
SDA Housing Investments points to a large demand for SDA homes, guaranteed financial support from the government and investment returns of upwards of 11 per cent per annum.
NDIS Property also points out that NDIA forecasts suggest that more than a million scheme participants will be enrolled in the SDA by 30 June, 2032, meaning that demand will only grow.
However, claims of high returns and low risk due to a pipeline of secure funding from the government has brought complaints to the Australian Securities and Investments Commission (ASIC).
It reminds property developers that the government funding is attached to the NDIS participant, not a property development.
Article source: Queensland Property Investor
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