What is the NDIS?
NDIS is the National Disability Insurance Scheme.
It started in 2016 and is a government initiative to fund the needs of Australians with disability (known as participants).
The scheme aims to help 28,000 Australians move into accessible and affordable housing called Specialist Disability Accommodation (SDA), to provide specialist dwellings that fit the requirements of people with disabilities.
The scheme takes a lifetime approach to improve the well-being of the disabled person and also their family and carers.
Does NDIS help with housing?
Yes, the NDIS help with housing, but the funding for the houses are only catered to a small niche of people who require a high level of support.
As part of the scheme, the NDIS will also fund builds for Special Disability Accommodation (SDA) to encourage investment from the private sector.
The government has pledged to fund of $700 million for 20 years, with investor returns anticipated at 10% to 12% per annum.
This would allow participants and their families and their carers to have a secure long term housing solution.
SDA providers will work towards developing and building suitable properties via partnerships with investors, developers and builders to participants who are eligible for SDA payments as part of their NDIS plans.
How to get approved for an NDIS investment loan?
Some Australian banks have become lenient when it comes to lending money for SDA projects.
Besides providing home loans for participants, banks are encouraging investment loans for family, friends or any interested investor.
Since there is a 20 year payment guarantee from the government for SDA projects, banks are willing to lend to people with a deposit of 20%.
Here are some ways you can get a loan approved for SDA funding:
- Find an SDA complaint builder who knows the requirements of the participants.
- Get a deposit of at least 20% so you do not have to pay Lenders Mortgage Insurance.
- A good credit history.
- Exceptional credit score.
- Stable employment with good income.
- Build or make renovations on housing that has an adaptable design to accommodate people with different disabilities.
How much can you borrow?
Borrowing to build a Specialist Disability Housing is generally limited between 60% to 80% as this is a niche segment that is still growing.
Furthermore, you might be able to borrow more if you plan to invest in a property that requires more improvements according to the SDA Design Category.
You can borrow up to:
- 80% of the total cost of land and construction.
Call us on 1300 889 743 or fill in our free assessment form to talk to our brokers regarding NDIS property investment loan.
Why should I invest in SDA?
Before NDIS was implemented, the funding for housing people with disabilities mostly came from governments or non-profit providers using upfront capital grants.
Now, there is a growing appetite among investors for impact investing and Australian banks have become lenient and started to lend to finance SDA projects.
Banks are providing the following:
- Home loans for participants (Bank LVR: 60% to 80%) (Shared equity LVR: 100%)
- Investment loans for family, friends or value-aligned investors. (LVR between 60% to 80%)
- Shared equity loans for participants and families. (LVR between 60% to 70%)
- Commercial loans for Community Housing Providers (CHPs) and other SDA providers. (LVR between 60% to 70% depending on valuation methodology and risk analysis)
Out of the 400,000 participants in the NDIS, an estimated 28,000 of them qualify for SDA. 12,000 of them are most in need of suitable accommodation.
Out of the 12,000, half are living in aged care facilities, while the other half are living in unsuitable situations (inappropriate design, living with aging parents, etc).
The SDA scheme is designed to address the massive undersupply.
Demand is not the problem here, and if you can build the right home for the participants, then your property will not face the problem of vacancy.
Furthermore, the government wants to motivate private investment of $5 billion to encourage the build of brand-new residential properties built for inclusion in the scheme.
The government has committed $700 million per annum in the SDA scheme funding from the overall NDIS budget of $20 billion per annum.
Your investment home not only provides rental income, it provides the perfect home for Australians with disability out of inappropriate aged care and place them in suitable housing.
Who is eligible for NDIS?
To be eligible for NDIS, a person must:
- Have a permanent disability that significantly affects the ability to take part in daily activities.
- Be aged less than 65 years when entering NDIS. (An NDIS participant must be between the ages of 7 and 65).
- Be an Australian citizen, or hold a permanent visa or Protected Category Visa.
- Be living in Australia where NDIS is available.
Where is the NDIS available?
As of 2019, the scheme is available in all of Australia.
However, since it is rolling out on a phased basis, the demand for Specialist Disability Housing is concentrated towards New South Wales (NSW), South Australia (SA) and Victoria (VIC).
What are the challenges of getting a loan approved for SDA?
Since this is a nascent niche for lenders to be in, you are bound to face some challenges as an investor:
- As the requirements for Specialist Disability Housing are quite specific, the cost of construction might exceed the final value. The property may become overcapitalised.
- The property is only made for a specific niche of people, so it might be harder to sell later on.
- Lenders generally do not prefer to lend to long terms leases to tenants. They would rather see you sell the property.
- Since the property is extremely specialised (i.e. a normal abled tenant would not live there), some lenders would not accept it as security.
- There could be problems with valuations as the property might be valued as a normal housing and will not account for the special modifications made to it.
- The builder has to be SDA compliant – so the number is limited.
- There could be high vacancy rates if the tenant moves out.
- While you can build anywhere in Australia, there are concentration limits on land, so land approval might be an issue. There are restrictions on the number of dwellings that can be in a particular area.
Currently, there are no lenders on our panel that can accept construction with NDIS properties. Group homes are also not acceptable. However, we have lenders on our panel who might accept minor modifications and renovations to properties to make it accessible.
What dwellings can I build?
You can build apartments, villas, duplexes or townhouses, stand-alone house and even group homes.
- Apartments are self-contained units that are a part of a larger residential building.
- Villas, duplexes and townhouses are perfect dwellings for up to three residents. They are separate semi-attached properties within a single land title or strata-titled area.
- Houses are located on a clearly separated land area (that is separated by a fence, hedge, etc) and cannot share a roof, wall, entry area, driveway, car park, area, etc, with other dwellings.
- Group homes are for up to four to five residents. Any of the above mentioned can be group homes provided there are a large number of residents living in it at a time.
Are there any design requirements that need to be fulfilled?
These are the following requirements for dwellings:
- Is a permanent dwelling and not a mobile home.
- Must provide long-term accommodation for at least one participant.
- Cannot already be funded as an accommodation by the Commonwealth, state or territory under a scheme unrelated to a disability.
- Is not excluded from SDA as it previously received home modifications, funding from National Disability Insurance Agency (NDIA).
- Is not excluded from being SDA as it is a parental home.
- Meets the requirements of new build, existing stock or legacy stock set out in SDA rules and NDIS and price guide.
- Living/dining area
- At least one bedroom
- Basic: There are no specific design requirements but the location and feature must cater to the needs of people with disability.
- Improved Liveability: The house has been significantly modified to improve physical access and enhanced provision for people with sensory, intellectual or cognitive impairment.
- Fully accessible: The designs must incorporate a high level of physical access for people with significant physical impairment.
- Robust: The housing design must incorporate a high level of physical access and must be very resilient, meaning there should be minimal maintenance later on.
- High physical support: The housing design must incorporate a high level of physical access with significant physical impairment requiring high levels of support.
- Basic: No improvements needed.
- Improved livability: Luminance contrasts, improved wayfinding and/or line of sight.
- Fully accessible: External doors and external outdoor areas accessible by wheelchairs, bathroom or hand basin and the kitchen sink, cooktop, oven, laundry, etc. that is accessible in seated or standing position, power supply to doors and windows (retrofit of automation).
- Robust: Must be very resilient and use inconspicuous materials that can withstand heavy use and minimises the risk of injury like; high impact wall lining, fittings and fixtures, secure windows, doors and external areas, appropriate soundproofing (if needed), laminated glass.
- High physical support: External doors and external outdoor private areas accessible by wheelchair, bathroom vanity/hand basin, kitchen sink, cooktop, meal preparation area and key appliances accessible in seating or standing position, structural provision for ceiling hoists, assistive technology, heating/cooling, household communication technology (video intercom system), emergency power solutions that can withstand at least 2 hours of outage where the welfare of the participant is at risk, doors with 950mm minimum clear opening width to all habitable rooms.
- Funding the support of participants who need support coordinators who will help them navigate the process of finding a home.
- Connecting directly with SDA providers.
- The NDIA’s provider finder
- Through local networks
- Organisation’s websites
- Through participants’ local support coordinators and their networks
- Accessing web-based platforms that offer matching provider to tenants
- Outsource to a third party (real estate agent)
- Fully Accessible
- High Physical Support
- If the dwelling will be new, existing stock or legacy stock.
- The type of building.
- The design category of the building.
- If the participant requires an On-site Overnight Assistance (OOA).
- If there is a need for breakout room (applicable for robust dwellings only)
- If there is a need for fire sprinkler.
There are also specific design requirements required for the dwellings.
At the most basic and minimum level, any dwelling or building type must have:
It is acceptable for the dwelling to have more than one of each element.
If the dwelling does not have either one of these elements, then it cannot be enrolled as SDA.
Please note that the requirements for the participant will change depending on the level of accessibility and support needed:
What improvements suit a disabled tenant?
The home improvements required for a disabled tenant depends on the SDA Design Category.
Please note that to get the benefit of the SDA payments, the tenant must fulfil the requirements needed for either Fully Accessible, Robust or High Physical Support.
Some of the improvements required according to the Design Category are:
How can I find SDA tenants?
Since the NDIS has adopted a market-based approach to encourage greater participation, it is not responsible for finding SDA tenants for your property.
Participants, with the help of their support coordinator, family members or carers can find and apply for any advertised properties/vacancies.
The NDIA will assist the participants in two areas:
You can find SDA tenants by advertising vacancies through:
NDIS requires the SDA provider to take full vacancy risk – there are no guarantees or safety nets provided by the NDIA if the SDA provider cannot find a tenant with SDA within their NDIS package, other than a brief period (up to 90 days) of continuous payments between tenants in certain circumstances.
What if the tenant does not have SDA funding?
You are still free to engage with a tenant that is not an SDA participant, but the agreement will be a normal lessor/lessee relationship and will reflect general market rental prices instead of SDA price limits.
SDA price caps vary substantially according to the design category and type of building; ranging from $13,244 per year for Group Accommodation with five residents in an Improved Liveability building with no On-site Overnight Accommodation (OOA) to $105,738 per year for a participant living alone in a two-bedroom apartment with OOA.
However, both parties to free to negotiate as tenants and landlord and does not have to confer with the NDIA.
How do you get the money?
Once the NDIS participants are eligible for SDA and added to their NDIS plans, they can go to the market and choose a property they’d like to stay in.
Depending on what suits their personal needs, they have the options to choose from single-occupancy apartments to shared facilities like villas and group houses.
The property must be registered with NDIS as an SDA compliant property in one of the three categories:
The provider (property manager) would then receive payments from the NDIS and Department of Social Services (DSS) which is then paid to the investor.
You only get paid once the participant starts living in the property.
Can I use the rental income?
Yes, you can.
We have lenders on our panel who will accept rental income to service the loan.
However, they might not accept 100% of the rental income and it will be shaded.
Why are lenders so conservative?
NDIS properties have to be specialised to suit a disabled tenant, which is a very specific niche.
Since it does not have mass-market appeal, it affects the marketability of the property, and the selling period could extend beyond 6 months, which creates an issue.
Therefore, lenders have stricter requirements for an NDIS property investment loan regarding deposit size and the type of modifications that will be done to the property.
Will I need a commercial loan to finance an NDIS property?
If only minor changes are needed and the NDIS property can be classified as “Basic” or “Improved Liveability,” then it can be a residential loan. Lenders will treat this as a residential loan because the property has a wider market appeal.
On the other hand, if you’re building an NDIS property that caters to the needs of the disabled tenant, then lenders will consider it a commercial loan due to the associated income stream.
How much does it cost to build an SDA property?
The calculation of how much it cost to build an SDA property depends on many factors:
Doing so determines the base price, after which additional factors are considered:
For example, if you’re building a house for 3 residents requiring high physical support, SDA compliant property in Hunter Valley, NSW with an OOA:
SDA Base Price: $66,820
Fire Sprinklers: 1.9%
Location factor: 0.97
SDA income: (66,820 x 1.019 x 0.97) x 3 = $198,140.6778
RRC: $8,300 x 3 = $ 24,900
Total income: $223,040.68
The cost of building an SDA property might be higher than a normal house, but the rental yields, combined with revenue from SDA payments and Reasonable Rent Contribution (RRC) is sufficient the initial build costs in the long run.
While the cost of constructing a SDA property might be high, an investor will receive high rental yields with the help of NDIS.
Your investment will go a long way to help Australians with disability get a forever home that suits their requirements.
Call us on 1300 889 743 or fill in our free assessment form to get in touch with our award winning brokers to get your investment loan approved.