The third round of applications in the National Rental Affordability Scheme closes on August 31, with the financial services industry finally taking a serious look at the project, two years after its launch. The scheme, which is jointly funded by the Commonwealth and State and Territory Governments, was launched in July 2008 with the promise of assisting construction of 50,000 new dwellings, or redevelopments, for low-income renters by 2012.

Tanya Plibersek, the Federal Minister for Housing, says the financial services industry is taking more interest in the latest round of applications, which is for investment projects consisting of more than 1,000 dwellings, because of its larger scale and after becoming more familiar with the scheme. The two previous rounds of applications had much lower minimums for number of dwellings per application and had yielded about 11,000 allocations only by March this year. Plibersek said in an interview in May that the Government was likely to extend the 2012 deadline to cater for the full 50,000 dwellings to have applications allocated and might extend the number of dwellings as well.

The incentives to investors and developers are paid for dwellings which are rented out at least 20 per cent below market rates to tenants who meet the low-income requirements. They are paid in two parts: 75 per cent as a refundable tax offset and 25 per cent as a cash payment from the state or territory where the dwellings are located. As of earlier this year, their total worth was $8,672 a year for 10 years, per dwelling, indexed to the rental component of the consumer price index. Plibersek admitted that it was difficult for super funds to invest directly in the scheme and hoped that some of the big fund managers and other institutions would provide suitable investment packages to help accessibility, after coming to arrangements with developers and builders.

She said she had met several fund managers with respect to the third and largest round of the scheme and they seemed receptive. On the surface it would seem that the scheme is tailor-made for long-term investors, such as super funds. The 10-year rebates and cash payments amount to a free kick of several percentage points a year in returns. However, super funds have shown little interest in investing in residential property in general in Australia, compared with their overseas counterparts. This is at least in part because of the lack of suitable vehicles which package a lot of dwellings together to make the investment worthwhile.

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