How to invest in NDIS housing

Australians increasingly want their money invested ethically, and there are now a number of ways to do that. They include shares, exchange traded funds and managed funds.

But more and more investors are looking at a wider universe of opportunities when deciding how to allocate their money. They are incorporating alternative investments in their portfolio to meet their individual goals, get access to reliable returns and diversify their assets.

Specialist disability accommodation (SDA) is one opportunity that has the potential to meet a variety of investor needs. But it's essential for anyone allocating money to this area to choose a support team with a good track record and a reputation for quality developments.

Research shows how important ethical investing is becoming. According to the Responsible Investment Association Australasia's report From Values to Riches 2022: Charting consumer demand for responsible investing in Australia, 83% of Aussies expect their bank account and super to be invested responsibly and ethically.

At the same time, demand for accessible housing among National Disability Insurance Scheme (NDIS) participants has never been higher. Research in 2020 by the Summer Foundation found there was a shortfall of more than 7700 housing places for NDIS participants.

It's likely that four years on and during an affordable housing crisis, the number of NDIS participants who need housing is now considerably higher.

The Summer Foundation's report, Getting the NDIS back on track: A survey of people with disability, November 2022, has shown NDIS participants are frustrated with long wait times for decisions about funding for housing. They also want better access to independent housing and housing choices, in addition to better access to home modifications and equipment.

This research explores the fundamentals of SDA housing and its distinctive characteristics, how it compares with other investments and its potential returns and associated risks.

Long-term income

SDA housing is a vehicle that can help connect investors wanting to make a difference with people who need access to appropriate housing. This term refers to purpose-built accommodation designed to support individuals with complex, specific needs, offering a range of features and modifications to facilitate independent living.

The NDIS provides financial support for accommodation for eligible individuals. Investors in SDA housing can secure long-term rental income through NDIS funding, which helps to mitigate the risk of vacancy and rental market fluctuations. The SDA payment is a standard, annual amount based on the property's location, features, size and level of accessibility.

"Often, people with disabilities find they are living in housing that's not appropriate for their needs. Developing SDA housing as an asset class can help
to address that," says Nic Alessio, group head of acquisitions, Apollo Investment.

Before investing, it's essential to understand how SDA housing generates its return.

It is designed to accommodate individuals with significant functional impairments or high support needs. The dwellings are purpose-built and incorporate features such as wider doorways, specialised bathroom facilities and advanced technology, to enhance accessibility.

The need for inclusive and supportive housing options for individuals with disabilities has grown significantly in recent years. SDA housing addresses this demand by providing specialised living arrangements that cater to the unique requirements of people with disabilities.

"Investing in SDA housing not only aligns with ethical considerations but also presents an opportunity for long-term financial stability and growth," says Alessio.

Hedge against inflation

When evaluating SDA housing, it is crucial to understand how it compares with other property investments.

Unlike standard residential properties, SDA housing benefits from a government-backed funding model, creating a reliable income stream. The typical entry level investment is between $900,000 and $1 million, and returns are around 13% to 15% a year.

"Demand for specialised accommodation will only continue to rise, providing stability and a potential appreciation in property value," says Alessio.

Importantly, SDA housing investments have the potential to act as a hedge against inflation.

As property values tend to appreciate over time, investors may experience capital growth that outpaces inflation rates, preserving and potentially enhancing their wealth. SDA income is also annually indexed to the CPI.

Beyond financial returns, investing in SDA housing aligns with investors' ethical considerations. Supporting individuals with disabilities by providing safe and accessible housing contributes to positive social impact, which enhances the overall appeal of these investments.

Risk versus reward

While SDA housing may present an interesting investment opportunity, it's vital to understand the potential risks. "It's important to understand that the NDIS is legislated. So a change of government does not necessarily impact how it operates," says Alessio.

Although the NDIS is legislated, changes in government policies or NDIS funding mechanisms may impact the returns on SDA housing investments in the future. So, it's important for investors to keep up to date with regulatory developments to mitigate the impact of potential policy shifts on returns.

SDA housing also requires specialised property management to ensure properties comply with disability accommodation standards and to maintain tenant satisfaction. Partnering with experienced property managers who are familiar with the unique requirements of SDA housing can mitigate operational risks.

As with any investment, SDA housing is susceptible to broader economic conditions and market fluctuations. So, it's essential to do thorough market research and stay informed about demographic trends to make informed decisions and navigate potential challenges associated with a relatively new investment opportunity.

How it works

One SDA property investment that Apollo Investment Australia recently finalised was a two-bedroom, high-physical support property north of Perth. It means two young women, who had lived in institutional accommodation for a number of years, found their forever home.

"They have been best friends since they were teenagers, but they suffer from muscular dystrophy. We got to be there on the day they moved in.

It's massively rewarding to be involved in situations like this," says Nic Alessio.

The investor paid $946,800 for the property, which will return $190,769 for 2023-24.

This report is sponsored by Apollo Investment. It was independently researched and written.

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