SDA Property under NDIS Update October 2021
NDIS is a growth industry
Hello and welcome to our latest blog on SDA Property under the amazing NDIS program in Australia.
We thought that it’s time for an update in what is fast becoming a highly sought after Investment Vehicle – SDA Property.
For obvious reasons, being the exceptionally sound yields a SDA property under the NDIS can return for investors. Interest continues to grow and we find that the same questions are being asked, especially the valid one about Tenants.
So perhaps as consultants in this space, we can try allay your fears, and if not, then SDA property will not suit your position of comfort and is unsuited, please read here as to why.
Keep in mind, standard residential property attracts rental yields around 3% to 5%. And investors happy with this yield, so they invest without question.
With a SDA property, there is every likelihood that you will secure at least 1 x participant, would you agree?
Did you know, that when you build for 2 x HPS participants and say you only attract 1 x participant who is a HPS category, you could still achieve a significant yield of +- 8% pa … linked to CPI? Nothing to sneeze at you may agree. Yes or yes.
When you do secure 2 x HPS participants your yield could be +-16% as per table below. *Yields vary according to property value, disability category, location factor etc.
At only 8% (higher than rental guarantees being offered without the risk), you are still significantly cash flow positive.
Simplistic explanation of SDA property yields when you build for 2 participants but only accommodate one
PS : if you build a villa for only build for 1 x HPS your NDIS total income could be $80k pa linked to CPI
SDA Property is a relatively new program. Especially in the space of private investors such as yourself. To date there are exceptionally low statistics to lend any level of comfort to you, when you do your own research.
There is also no data base in Australia demonstrating demand by participants for SDA accommodations either.
The only information, you the investor can go on, is the belief you get to own once you have done your research, and if you question your belief, ask where does that leave you.
What we do know is :
- The program was introduced because there is a dire need for newly built SDA homes built fit for purpose to meet the needs of Participants.
- Most participants who have SDA funding are in legacy stock (around 4302 enrolled dwellings), and keen to move to modern homes.
- Legacy stock we know is unsuitable by today’s NDIS standards and compliance and government is planning to stop funding legacy stock.
- The number of SDA qualified participants is 30,647 (as at end Dec 2021), with a relatively low number currently in suited accommodations.
- Eligibility estimated to grow to 52,417 participants by June 2031).
- There are 2,462 new builds enrolled in the system. With around 5,760 new builds under construction.
- You can easily identify who is getting what NDIS services, in what location using the NDIS Demand Map here.
- This is an indication of potential Participants in those areas.
- We also know that SIL Providers are reaching out to SDA Providers requesting the type of accommodations their participants need or will need. SDA Providers are thus building relationships with SIL’s because this is where your participant and their income will come from.
- Year on year there are around 100,000 new members who have disability joining the NDIS. As at Dec 2021, there were 502,413 NDIS Participants registered.
- This number is expected to grow to 859,300 by June 2031.
- And year on year we also know that disability will occur to an able-bodied person, who one day will join the NDIS placing upward pressure on the supply of new SDA dwellings.
- From research, it seems that a low-level person with disability requires a budget of around $300k per annum and a high level disability person closer to $1m pa, in wrong accommodation and under the current situation.
- When you build a SDA and receive say $45k pa to accommodate that participant, this means you are saving government (and tax payers) around $250k to over $800k per annum. This program is not only brilliant it is also financially viable.
- There is no evidence to support the logic that the 28,000 number will not grow as the program proves to be financially viable. Surely it makes sense to extend the number of SDA participants who would be eligible to qualify for SDA funding?
- We also know based on the recent NDIS Survey 20/21 Quarterly Report and the Summer Foundation Survey Jan 2021, which can be read here in summary form, in summary states that the need for SDA accommodations is strong and growing. Be mindful of the location and type of dwellings though.
Vacancy
Of course, there are the horror stories of empty SDA’s out there. To lend any credibility to these stories one has to understand the facts for each, question how many are empty, what disability category, in which locations, quality of the build, floor plan design etc etc. Then come to an informed understanding. Keep in mind the average occupancy for all SDA’s is only 1.4 participants per dwelling, so having empty beds in homes with 3+ participant bedrooms makes sense.
Single Participant SDA homes tend to be fully occupied (location and floor plan dependent), SDA’s built for 2 x participants also tend to be fully occupied most the time.
SDA’s built for 3 x Participants often only has 2 x Participants (unless in inner CBD central suburbs).
*Robust Participation tends to only ever accommodate only 1 x Participant the majority of the time.
Some developers got it very wrong whilst learning, however the industry has matured and a compliance stamp of approval, which is very stringent, needs to be received on the build plans prior to construction and again compliance certification on the completed build. This is your protection mechanism.
Invest with your participants in mind!
When you invest with your Participants in Mind (tenants), what do they want and need, this strategy will improve your chance of attracting participants sooner and holding onto participants longer.
It makes investment sense to avoid cheaper builds, cheap upfront will cost you a lot more over the life of the Investment. When you build to suit the purpose of the SDA initiative, commit to invest more upfront and you will improve your returns on investment. The financial difference to you over the life of your investment can be significant when you get it correct from the outset.
Those rental guarantees …
Be mindful of Rental Guarantees they highly suit the company guaranteeing the rent, they do not suit you the investor and come with a hidden layer of risk being “who is guaranteeing the group offering you the rental guarantee?” And if they close their doors who will manage your asset for you? See video here
Also be mindful of 5 or 10 year head lease agreements they do not serve you any purpose. You need to understand the exit clauses. If exit clause is a very short notice period, then that is acceptable. Usually property management fees are aligned to head lease terms. Get the info upfront, compare and analyse them. You may not know, just because you get your property from one group, that does not mean you have to employ their SDA Provider to manage your property. You may elect who ever you prefer to source you participants and manage the property for you, so that you can get your income from the NDIS.
Apartments
An interesting discussion was had with a SIL provider who raised a very pertinent point in that when a Participant is audited they are allocated $xx dollars towards their SDA package. This is the only amount that they have and can use to become one of your participants. Yields will thus be lower than what those marketing firms touting for your business appealing to your greed and fear of missing out are quoting …
Read more here
Read more here on understanding SDA property under the NDIS and for an Update on the industry read here.
We love questions, so send them our way and if you have been given a SDA package to consider and want a consultants view of it, email it to us on admin@investinproperty.id.au it will be our privilege.
You may also want to see if you qualify to be able to secure a SDA property by clicking here
