SDA Housing Offers Yields Above 10%

Posted on 25/08/2019  
SDA Housing Offers Yields Above 10%

Building new homes for the disability sector can be the gold mine property investors are looking for but be warned - with the high returns come some risks.

Homes within the Specialist Disability Accommodation (SDA) scheme can deliver yields of more than 11%, according to Danny Buxton of Triple Zero Property Group.

But such properties cost more to build and can experience periods of vacancy which may erode the otherwise good returns.

Buxton says there is strong demand for purpose-built homes for people with disabilities and current supply is low.

Research reveals the existing supply of SDA needs to grow by about 60% to house the people the National Disability Insurance Scheme (NDIS) expects to fund to the tune of $700 million every year.

Under the NDIS, people no longer have to be in shared living to access disability supports, they can choose where they want to live and who they want to live with.

“We have had a lot of people over the years ask us about NDIS housing,” Buxton says.

“It is an ultra-high yielding investment. There is a significant upside not just for clients but the community.”

The scheme “generously compensates” owners who specifically invest in compliant homes in an effort to dramatically increase the housing supply needed.

“The final returns can vary greatly, depending on the style and scale and accessibility of the dwelling,” Buxton says.

“But investors also need to be aware that the build price can increase quite significantly (compared with a standard home) to meet the design guidelines required.”

The type of dwellings required range from basic accessibility, improved accessibility, fully accessible, robust and higher physical support.

Such properties may not suit, or be within the means of, everyday investors.

Valuations can pose problems: valuers may value on the basis of it being a typical home and won’t increase the value because it is built to SDA specifications, despite the additional costs of construction.

Buxton says the extra costs come from items such as installing wider doors and ramps to make them suitable for people with disabilities.

He says the key incentives for investing in an SDA property is achieving strong yields, which can be between 8.9% and 11.5%.

He warns that, while SDA homes can be a solid and rewarding investment, those wanting to take the plunge need to do thorough research about what was required.

“Some builders will claim the projects they are working on are approved for SDA housing, but they haven’t gone through the compliance process,” he says.

Not only do you have to follow the compliance guidelines, but you must be working with the carers right from the start to ensure there is a “market” and tenant for your property, Buxton says.

It is up to the investor to find a tenant and it can be difficult to match properties with a tenant’s particular needs.

“As a single asset investment, it could be exposed to significant vacancy if not handled properly,” Buxton says.

Terry Ryder, managing director of hotspotting.com.au, says that when considering investing in such specialised property it’s more important than ever to seek expert advice before any construction work is undertaken.

“Spending a relatively small sum of money on expert advice can actually save you a lot more than the cost of getting it wrong,” he says.

Buxton says developing relationships with NDIS co-ordinators in the local area, including existing disability support providers, disability organisations, aged care accommodation providers, parent carers and local allied health providers, is essential to work out exactly what type of properties are needed.

“It is not just about finding a block of land and building a house, you’ve got to have the land approved because there are concentration limits. There are restrictions on the number of dwellings that can be registered in a particular area.”

If you can mitigate the risks the pay-off can be significant, with many owners finding tenants who will remain for 10-15 years.

“There is certainly a real great opportunity for people seekingr a high yielding property and ethical investment,” Buxton says.

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