The National Rental Affordability Scheme (NRAS) Is Ending Soon

What Does This Mean For Your Investment Property?

Introduced in 2008, the National Rental Affordability Scheme (NRAS) was a program set up by the federal government as a way to address the shortage of affordable rental housing.

They did this by incentivising investors - via generous tax offsets - to rent out their properties at 20%+ below market rate.

And the aim was three-fold.

To boost the overall number of rental homes by tempting fence-sitting investors into the market, encourage them to find innovative ways to keep management costs down, and make new homes available to low income earners who may otherwise not be able to afford it.

Set to end in 2026, if you’re an investment property owner currently participating in the NRAS scheme, what does its grand finale mean for you?

Essentially, you have four main options:

Continue to rent out your property at a discounted rate, without the NRAS incentives
Negotiate a higher rent agreement, either with the same tenants (if they’re willing to pay it) or new tenants
Move into the property yourself
Sell your property

With the current property market in a frenzy - both from a rental and sales perspective - here are some key things to consider that may help you make a decision.

Reduction of income.

One of the biggest reasons investors chose to participate in the scheme were the substantial perks attached to it, including tax-free income and generous government contributions each year.

With the program coming to an end, these incentives will be scrapped in favour of regular investment property parameters - including negative gearing, depreciation & deductions - so investors may need to look for other ways to top up their income stream by bolstering rents or offloading properties.

A dip in demand for ex-NRAS rentals.

Given the abolition of NRAS tax benefits, it will be tempting for property investors to significantly up the rent on their properties as agreements end, to try and make up the income shortfall.

However, it pays to tread carefully, and carefully consider how high you’re willing to push.

As tenants move out of ex-NRAS properties due to now-unaffordable rents or natural attrition, there’s set to be thousands of homes hit the rental market (many asking for loftier lease agreements).

In the current climate - where overall rental demand is high and stock low - this may not be such an issue.

But as the market slowly corrects, demand will likely come down and vacancy rates will rise… with landlords having to adapt and become more competitive.

So in short? Hope for the best but prepare for the worst.

Put in place a long-term strategy that takes into account a potential drop in demand, and remember - short-term greed never pays off in the long run.

Attractive market conditions.

Given the over-inflated state of the rental market, investors are sure to be enticed by the thought of higher returns, offering good reason to hold onto their property.

However, despite a minor slow-down due to interest rates, property values are also soaring - presenting an attractive opportunity for investors to sell and make a tidy profit.

After all, the purpose of investing in property is to capitalise, right?

So which option is best for you?

Whichever you choose, make sure you do your homework.

Before your existing NRAS lease agreement wraps up, think about what you want to achieve in the short, medium and long-term.

For instance, what stage of life are you in, and what lifestyle considerations do you have?

Would you like to sell and free up funds for an impending retirement, to invest elsewhere or to buy your dream home?

Or are you able to hold onto your asset for a few more years and benefit from negative gearing, capital growth and equity? If you love the location, you might even decide to move into the property yourself!

Either way, take the time to find out what’s happening in your local property market and figure out what your property might be worth from a sales or rental point of view.

And don’t forget to talk to an experienced real estate agent and trusted accountant about what costs and tax implications might be involved in either transitioning to a regular property management arrangement or going through with a sale.

Seek advice.

Which leads us to our next point.

Property investment can be complex at the best of times - even more so when you throw in the NRAS - so it’s important to seek out advice from financial, real estate and property management experts to help you navigate the end of the program and make sound decisions.

Well-versed in property investment strategy, these professionals will help you:

calculate all potential financial implications to determine if it’s viable to keep the property as a rental, or whether it's better to sell
assess market conditions, and make educated predictions about what the rental and sales market might look like after the scheme ends
access all the services you might need - such as real estate agents, property managers, accountants, conveyancers and legal advisors - who can help with the transition
evaluate each strategy to find the one that suits you best

And finally, what does it mean for your tenants?

Given entry to the scheme was closed to new tenants some time ago, it’s likely to be long-term tenants that feel the brunt.

However, if there’s a fixed-term lease in place, nothing can change until this expires.

Once your agreement comes to an end, normal tenancy regulations take over - your tenant is no longer bound by income eligibility requirements, and you are no longer bound by NRAS conditions.

It will be up to you to decide whether you’ll extend the lease agreement as-is, propose an increase in rent, move into the property yourself or even sell it.

Whilst the end of the NRAS means big decisions need to be made, it’s important for you to carefully consider all the options and talk to the right people in order to make the best decisions for your investment and secure a prosperous financial future.

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DISCLAIMER: All recommendations made by We Connect Property are general in nature and not to be relied upon as legal or financial advice. To ensure accuracy, we always strongly recommend seeking independent, professional advice tailored to your specific situation before making any investment or financial decisions.

For more information, please visit: https://www.dss.gov.au/our-responsibilities/housing-support/programmes-services/national-rental-affordability-scheme