NDIS Property Investment: What To Consider?

The vast gap between supply and demand for housing units has led to massive spikes in rentals, including NDIS properties.

As with any property investment, knowing more about NDIS properties, how the NDIS operates and what to expect can help you make a more informed decision. It’ll also avoid any stressful surprises down the road.

What is the National Disability Insurance Scheme (NDIS)?

The National Disability Insurance Scheme (NDIS) is a joint initiative of the Australian Government and State Governments to offer support to people below 65 years of age with some permanent and significant disability.

The NDIS began on a trial basis in 2013 and started rolling across the country in 2016. It supports approximately 4.3 million eligible Australians with intellectual, physical, cognitive, sensory, and psychosocial disabilities.

While it isn’t a welfare system, the NDIS is designed to help people get the needed support and services while their skills and independence gradually improve.

Among the range of supported independent living services, it helps eligible NDIS participants find accommodation. The NDIS may also contribute towards the accommodation costs where the participants require specialised housing due to their disability and meet the eligibility criteria.

What is the Specialist Disability Accommodation (SDA)?

Specialist Disability Accommodation (SDA) is a range of suitable housing catering to people with very high support needs or extreme functional impairment.

In addition, participants who meet both - the specialist disability accommodation needs requirement and the NDIS funding criteria - qualify for SDA.

These specialist dwellings, with their accessible features, enable residents to live more independently and facilitate improved and safe delivery of other supports.

The SDA helps encourage the market to offer high-quality, accessible, well-designed housing for eligible participants. SDA funds are paid directly to SDA providers with enrolled and compliant dwellings. This enables the providers to take care of building and maintenance costs.

SDA participants make a reasonable rent contribution and pay for other expenses such as electricity bills.

Why Should Property Investors Care About SDA?

If you’re considering investing in an SDA property, understanding the present and future supply of SDA housing is critical in deciding if the investment options are viable and will generate high rental yields.

With this type of property, the Federal Government will subsidise your tenant’s rent through the NDIS. Usually, your returns average 10-15% per annum. Thus the scheme is a vehicle for social and economic participation.

The Opportunity

The SDA market has grown to a $2.5 billion asset class in five years. As per the key findings published in Specialist Disability Accommodation (SDA) – Supply in Australia in November 2021:

• The government expects that up to 30,000 NDIS participants with ‘extreme functional impairment’ or ‘very high support needs’ will receive SDA funding by 2025.
• SDA funding is currently being paid to 53% of the 30,000 NDIS participants expected to qualify for SDA.
• 14,000 remaining people potentially eligible for the SDA scheme are likely to reside in government housing, residential aged care, hostels or with family.
• In addition to the unmet demand, there is a need to replace the old stock with modern SDA homes. Thus, the actual demand for approved SDA housing could be higher than 14,000 spots over the next 10 years.
• 45.2% of SDA providers expressed confidence in the market scenarios. This was based on consistent strong demand for SDA country-wide, along with improvements to NDIA policies and processes related to SDA eligibility and payments.

Overall, the numbers indicate a strong demand for SDA properties given the 14000 who are yet to receive funding. And considering the old or existing housing stock that requires replacing, the market is even more.

The Challenges

By mid-2021, only 16,033 people were receiving SDA payments. Furthermore, only $204 million of the $700 million annual budget had been allocated to NDIS participants’ plans. The survey also indicated challenges cited by the 40.3% of SDA property owners, such as:

• Funding issues: SDA providers highlighted the long wait time for funding approvals for potential SDA tenants. They also cited that the determinations frequently don’t match participants’ needs and eligibility and a particular lack of permissions for single-resident dwellings.
• Demand and supply activation: Some regions had an oversupply, leading to vacancy risks.
• Financial concerns: Housing providers reported insufficient funding to cover land and building costs. Some also reported delays in receiving SDA payments.
• Uncertainties: Providers were unhappy about frequent policy changes and the lack of clear direction from the National Disability Insurance Agency (NDIA) regarding single-resident dwellings and shared supports.

How Does NDIS Property Investment Work?

If you wish to rent out NDIS investment property, you must be registered through the NDIS Quality and Safeguards Commission to enrol in special disability accommodation.

You also have to submit information related to design category, building type, number of bedrooms, and dwelling location to provide proof of suitable specialist disability accommodation.

Design Categories

New build SDA dwellings are enrolled with the NDIA in one of the four design categories:

1. Improved Liveability: It enables tenants who find it difficult to see or understand things around move around easily. Handles, doorways, and switches are user-friendly. Even seeing through from one room to the next is relatively easier.
2. Fully Accessible: Ideal for tenants with a significant physical disability who use a wheelchair or all the time. These homes have broad doorways, user-friendly bathrooms and kitchens, and no steps inside the house.
3. High Physical Support: Design caters to those using physical support systems such as an electric wheelchair or a hoist to get into and out of bed. In addition to the features of fully accessible SDA, these homes have intercom connections to support workers, emergency backup power, assistive technology and strong ceilings to support a hoist.
4. Robust: Suitable for NDIS-approved tenants who sometimes act in ways that endanger them or the people around them. The windows, walls and other fittings are secure, robust and have good soundproofing to minimise disturbance to other tenants. These homes also have a space where tenants or staff can go to stay safe.

Building Types 

Your NDIS SDA property also has to be enrolled as one of the following types:

1. Apartments: Includes self-contained units which are part of a larger building complex.
2. Duplexes, Villas, Townhouses: Comprise semi-attached properties with single land titles.
3. Houses: Includes detached low-rise dwellings with a garden or courtyard.
4. Group Homes: These are houses that hold up to five people.
5. Larger Dwellings: These properties house more than five long-term residents. They are for participants who have already lived in this type of dwelling.

Other Requirements for NDIS Property Australia

• SDA-compliant dwellings should be permanent and mobile homes and provide long-term accommodation for at least one NDIS participant.
• The accommodation cannot already be funded under any schemes or grants unrelated to a disability.
• It should not be excluded from SDA because it has received home modifications, funding from NDIA or is a parental home.

Finding a Tenant and Receiving your Rental Income

The Housing Hub, funded by the Sector Development Fund of the Federal Government and NEST, can help you connect with people needing SDA housing.

When a participant moves into your enrolled dwelling as an SDA provider, you can claim against that participant’s NDIS SDA funding.

SDA price limits vary as per the dwelling type. You can find the price limits funded for SDA on the NDIS SDA Pricing and Payments page. Notably, this increases with the consumer price index (CPI) every year.

What to Know about NDIS Investment Loans

If you’re scouting loans for a property purchase within the NDIS sector, some lenders are more considerate when lending money for NDIS housing. Furthermore, some banks are supportive of investment loans for this purpose.

As the government has offered a 20-year payment guarantee for NDIS SDA housing, banks often lend investor buyers who have a deposit of 20%.

How to Get Approved for an NDIS Investment Loan

Most SDA builders are well-versed with the SDA rules. Once you find a compliant builder, you can approach a suitable lender or bank for a loan. The following pointers can improve your chances of qualifying for a loan to purchase approved SDA housing:

• Deposit: As with a commercial property loan, Lender’s Mortgage Insurance (LMI) is unavailable for NDIS loans, so the loan to value ratio (LVR) cannot surpass 80%. This implies you’ll need to show at least a 20% deposit.
• Credit history: In a financial crisis, most investors would naturally first pay their owner-occupier loans. Therefore, investment loans are usually a higher risk to the bank. So, reduce your credit card limit and ensure that your other debt repayments are on time. Good credit history and credit score significantly improve your chances of qualifying for an investor-buyer loan.
• Income: Proof of secure employment and regular income assures your lender of your financial capability to fulfil your monthly repayments.

NDIS Property Investment Pros and Cons

Understanding the pros and cons of the scheme can help you make the best choice for your property investment.

Pro: Emerging Market

SDA is an emerging market with enormous potential to provide long-term stable returns to investors and meet the housing needs of people with disability.

Pro: Long-Term Gains

If you are looking at long-term investment, i.e. you plan to hold the assets for 20 years, thereby providing the participant permanence of housing, it makes sense to purchase NDIS investment property.

Pro: Ethical Investment

By providing disabled Australians with an opportunity to access suitable housing, you are actively invested in social and economic participation in the community.

Pro: Rental Yields

Since the funding is from the government, you receive higher than average market rents and the returns guaranteed by the government. In fact, investors have attributed ‘double-digit’ returns as an essential benefit.

Moreover, investors benefit from long tenancies due to limited availability, rendering it ideal for those looking for consistent long-term cash flow. Furthermore, with your rental income pegged to the CPI, your rental yields will keep pace with inflation.

Pro: Exit Option

When you want to sell your investment SDA dwelling in future, you can cash in on your stake by selling (like most do) to another investor. Alternatively, you can re-convert it to a regular residence by removing some living aids and selling the property.

Con: Limitations of categories

The different choice of categories has their limitations. For instance:

• Robust: While the demand for Robust is high, investors may have to incur extra costs on repair bills due to damages by the participants. So while three Robust participants per dwelling may seem unrealistic, two participants may be a better option. Likewise, the dwelling may have to cater to different needs such as low noise/light tolerance, etc.
• High physical support: The supply in this category is usually higher than that of Robust homes, making it more challenging to find participants.
• Improved Livability and the Fully Accessible: This category is often already taken up by investors who already own a home and want to convert and enter the SDA rental pool.

Suppose the market in your location is already saturated. It may suit you better to opt for a standard investment property and save more income tax rather than investing in a brand new property.

Con: Lender Issues

Lenders usually prefer to lend to short terms leases and would like it if you sell your investment property sooner. Also, some lenders may not accept your NDIS investment property as security since it is highly specialised.

Furthermore, if the property is treated as regular housing without considering the special modifications implemented, there could be problems with valuations.

Con: High Vacancy Rate

If your SDA dwelling is vacant, you will not receive SDA payments. As per studies published in Aug 2021, the market was experiencing higher than anticipated vacancy rates. In such situations, you may have a vacant SDA home with no takers and no rental income.

Con: Scheme May Change

If you’re looking to advance your property portfolio, you should know that schemes can change, and you may find it challenging to find a buyer for the dwelling.

Con: Financial Risks

While high vacancy rates are one of the most significant risks, your NDIS property investment may also be affected by uncertainty on pricing and government regulation. Working with high-quality and experienced counterparties is therefore essential for success.

Con: Land Approval

Although you can build anywhere in Australia, land approval may be an issue where there are restrictions on the number of dwellings in a particular place.

Con: Pricing

There may be risks related to government regulation and pricing of SDA. For example, a lack of absolute certainty on SDA payments from the government is a barrier to investing in SDA.

The government is limited in its ability to assure greater pricing certainty and cannot bind future governments. However, by and large, the government has provided as much certainty as possible.

Con: Social Risks

Understanding the needs of potential tenants who may be vulnerable and waiting for NDIA approval processes is critical. Delays approving funding SDA and other supports in the NDIS plans of potential tenants are social risks that could also impact your rental earnings.

Con: Costs of Specialist Property Management Firm

Renting out your property may involve hiring costly rental managers to help you find approved participants. In addition, the ongoing rental management fees may be very high. Also, where rental guarantees are offered, you may get only a small percentage of NDIS funding.

Is it Worth Investing in NDIS Property?

Whether or not to invest in an NDIS property depends on several factors, including your objectives, financial situation and investment goals.

Here are some key questions you could ask yourself to determine if you are ready to invest in NDIS property.

• Purpose: Are you looking for long-term investment opportunities with steady returns and a social cause? If yes, then an NDIS property would make sense.
• Market understanding: Do you understand the risks related to SDA investments and how others manage and minimise these risks?
• Capabilities: Are you financially capable of providing high-quality housing at scale for people with disability and prioritising the needs of your tenants?
• Stability: Do you have a substantial investment portfolio that you can diversify further and deploy capital to an asset class depending on government regulation and pricing?

If You’re Ready to Invest in NDIS Property

If you have decided to invest in NDIS property, then study the existing environment in detail. Some of our top tips to get started include:

• Choice of location and housing: Ideally, select a site near public transport and essential amenities. Likewise, study the demand-supply scenario for the different SDA housing design categories and choose the one with the most investment potential.
• Choosing the right rental manager: Having a licensed SDA Rental Manager who understands your investment purpose is just as important. Moreover, a property manager with good relationships with caregivers in that area can help connect with participants.
• Choosing your lender: Thoroughly study the deals and loan features of various lenders while selecting a home loan. Choose a product that matches your situation and supports the overall success of your investment goals.

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