Private Investors:

How to get approved for an SDA suitable property investment loan?

What is the NDIS?

The NDIS (National Disability Insurance Scheme Act 2013) is an Australian Federal Government Act developed in 2013 and administered by the NDIA (National Disability Insurance Agency) on behalf of the federal and all state governments. The purpose is to allow people with disability to exercise choice and control about the matters that directly affect them – such as their housing needs. 

The Australian Government was one of the world’s first countries to sign the UN Convention on the Rights of Persons with Disabilities. 

The NDIS is the (Australian) National Disability Insurance Scheme. It started in 2016 and is a government initiative to fund Australians’ needs with disability (also known as participants).

The NDIS scheme aims to help 28,000 Australians move into accessible and affordable housing. As a vital provision within this scheme, there is a part called Specialist Disability Accommodation (SDA). 

Please note No update on the number of scheme participants since the original estimate of 6 % of NDIS participants. Yet both the number of total NDIS Participants and the percentage of participants being found eligible for SDA have both increased substantially.

SDA aims to provide specialist dwellings suitable for people with disabilities’ requirements. This accommodation support system takes a lifetime approach to improve the well-being of the disabled person, their family, and their carers.

Does NDIS help with housing? 

Yes. NDIS helps with housing, but these directly funded houses cater to a small niche of people who require a high support level. 

However, as a part of the scheme, the NDIS will support the private ownership of Specialist Disability Accommodation (SDA) via a generous rental subsidy based upon participant the level of care required, property location, and many other factors. SDA approved funding is to encourage investment from the private sector to supply various house styles to support participants with different care levels they require.

The Government has pledged to fund $700 million annually for 20 years, with investor returns anticipated between 8% to 20% per annum.

The NDIS / SDA subsidy scheme will allow participants and their families and their carers to secure long-term housing solutions. In partnership with the NDIS / SDA, private investors will develop suitable properties for eligible participants.  

Developing NDIS / SDA approved rental subsidised property, private investors provide suitable purpose-built homes for up to 4 disabled Australians in each home. As an incentive, the generous NDIS SDA subsidy scheme will pay you rental returns that exceed 10.5% net ROI (return on investment). Actual returns depend on the location, the number of participants catered for, and the exact property type.

Many eligible SDA funding participants are not even aware of what SDA is and how they can benefit from it!

Many participants have SDA in their plans don’t even know they have it! Funding provision was written into participant plans provided to those who live in legacy group homes (whose funding runs out in 2021 or 2026). It also says that many more participants are still not aware of what SDA even is, even those eligible for it.  

Is SDA Investment Suitable For You?

Like all property investment schemes that attract government funding, NDIS / SDA investments do not come without risk (headaches). 

Please note well: All property investment involves risk! Investing in SDA suitable property is no different. 

The principle risks on the ROI (return on investment) in SDA property are:

• Vacancy risk, and the 
• Failure to adhere to the strict compliance requirements demanded by the NDIA. 

Retaining the right company to assist you with your NDIS / SDA investment is crucial to your project’s ongoing success. 

Further Opportunity - Many Australians need SIL (Supported Independent Living) housing but do not qualify for SDA funding. Some have NDIS plans (but not SDA plans), some can self-fund, others may need co-living help.

What are the income sources from an SDA investment?

The income sources for the property are as follows:

• RRC (Reasonable Rent Contribution) - 25% of the Disability Support Pension.
• CRA ( Commonwealth Rental Assistance) - 100% of any CRA granted.
• SDA income - SDA payments are known as SDA benchmark prices and calculated according to the yearly published SDA Framework.

Each home’s approved participant makes their payments to the Registered Provider. The Registered provider then administers the household according to the agreement with the Investor.

How to get approved for an NDIS investment loan?

Obtaining finance to fund the purchase of an NDIS / SDA property is an area that remains the single most significant roadblock for any potential investor. The more specialised a property is, the higher the build cost. As Special Disability Housing requirements are quite specific, the construction cost might exceed the bank’s final value. The property will be overcapitalised if you change the usage from special disability accommodation to public rental housing.

The actual amount the lender will lend you will depend upon the LVR (Bank Loan to Bank Value Ratio). The banks’ valuer will evaluate your property based on a typical residential home – not a specialised NDIS / SDA highly modified home. Your contribution amount will equal the required deposit plus any shortfall between the contracted price and your property’s bank valuation.

RedCap Finance Brokers

Australian retail banks are now starting to lend money to finance SDA projects. The increased comfort for retail banks reflects the journey banks have undertaken to learn about the disability sector and SDA.  

Retail Banks, lenders, and private lenders are now considering funding the following financial products in the SDA market (but do not be mistaken - it is not easy): 

• Home loans for participants 
• Investment loans for family, friends, and engaged/value-aligned investors 
• Shared equity loans for participants and families 
• Commercial loans for Community Housing Providers (CHPs) and other SDA providers 

Typical guide to LVR ranges of contract funding available shown below:

Home loan 

• Bank LVR 60% to 80% 
• Shared equity LVR up to 100% 

Investment loan 

• Bank LVR 60% to 80% 

Commercial loans 

• Bank LVR from 60%-70% depending on valuation methodology and risk analysis 

Mezzanine finance (Gap funding)

Some institutions may consider mezzanine finance in some commercial loans only. Mezzanine finance provides the ability to debt finance up to 100% (or more) of the property value. Key considerations include: 

• Provides project gap funding to 100%+ LVR 
• Maximum 10-year term 
• Reasonable cost (circa 10%) 
• Social purpose organisation 

Strong SDA cash flow enables higher-cost debt, if required, without jeopardising project viability. 

Every Investor’s situation is unique! 

New Property Australia and RedCap Finance Brokers can assist you to find the right property and the right funding solution for your circumstance. It costs you nothing to find out if we can help you.