In these uncertain times in Property Markets, history has shown if we look a bit outside the box we can overcome hiccups in the long term use of property
One such strategy may be “Affordable Housing”
What is Affordable Rental Housing?
The State Environmental Planning Policy (Affordable Rental Housing) 2009, or AHSEPP, was introduced on 31 July 2009 to encourage the development of new affordable rental housing.
Affordable housing is housing that is appropriate for the needs of a range of low to moderate income households.
Housing is usually considered affordable if it costs less than 30 percent of gross household income. It may include a range of housing types and sizes, is only available in some locations and eligibility criteria apply. Properties must remain as Affordable Housing for a period of 10 years.
How is affordable housing different to social housing?
Affordable housing is not the same as social housing.
Affordable housing is open to a broader range of household incomes than social housing, so households can earn higher levels of income and still be eligible
Affordable housing is managed more like a private rental property
How is eligibility for affordable housing determined?
Initial eligibility for affordable housing mostly depends on household income, which must be within limits set by the NSW and/or Commonwealth Governments. The more people, including children, living in a household, the higher the household income is allowed to be.
How is Rent Calculated?
The maximum rent is usually 30% of market rent with a maximum allowable of $520 per week
Who can manage Affordable Housing properties?
Affordable housing properties must be managed by a Registered Community Housing Provider for a period of 10 years from the date of completion.
Can I sell the property during the 10 year period?
Yes, however the property will remain as affordable housing for the balance of 10 years from when originally purchased.
What happens after the 10 year period?
The affordable criteria ceases and the rents can be increased to market value or the property can be used by the principle as their primary residence.
How do I obtain Finance?
As there is a Covenant on title not all Lenders will accept the security property. If you are intending to use this strategy I caution against purchasing off plan and only purchase a completed property obtaining finance approval prior to exchanging. There are Lenders who will lend today to both individuals and SMSFs
The following is based on an actual property currently for sale
2 Bedroom Unit Selling for $665,000 in Caringbah
Similar unit sold in development for $725,000
Current gross yield on Affordable Unit is 5%. This is comparable to most “traditional units if not higher)
The property is new so additional benefits in the form of Depreciation also applies
The strategy is to hold the property for 10 years at which time it will revert to a traditional apartment which can be sold to owner occupiers at a market rental with the intention of picking up a capital gain. There may be additional tax benefits if structured through an SMSF
If you are interested in exploring this option please contact us.