NDIS property is no quick buck investment but disability housing demand is growing

In the past year, investment in dwellings designed for people living with disability has undergone significant marketplace change, but sector experts say with due diligence, investment opportunities remain.

An imminent federal government response to the latest NDIS Review recommendations, prompted in part by the disability Royal Commission (RC)’s final report, advises of considerable changes, especially to Specialist Disability Accommodation (SDA) design categories.

A 20-year projection model released by NDIS steward, the National Disability Insurance Agency (NDIA), estimates that by 2042, at an average growth of 2.4 per cent per annum, 36,684 SDA homes will be required.

The greatest demand will be in Melbourne’s West (1,464), the city’s South East (1,378), North East (1,107), Inner (829) and Outer East (806), and Sydney’s Parramatta (786), Inner South West (734), Blacktown (677) and Outer South West (650).

Projections for Queensland are highest in the Gold Coast (772), Sunshine Coast (536) and Logan-Beaudesert (461), while in Western Australia, which doubled its SDA developments last year alone from 231 to 477 dwellings, the greatest future demand will be in Perth’s North West (801) and South East (785).

In South Australia, Adelaide’s North (979) and South (774), Tasmania’s Hobart (477), the ACT (687) and Northern Territory’s Darwin (282) project the highest demand.

There are currently four categories, including Robust, Fully Accessible and High Physical Support, with the review recommending the fourth, Improved Liveability, be removed, and a new Shared Living Support category be created.

Also recommended is the separation of SDA and living supports providers.

Brent Woolgar is a former property engineer turned SDA expert who is personally motivated by the needs of a family member and SDA-eligible NDIS participant.

After nine years overseeing 400 SDA projects, he said one of the biggest forces of market change will be that separation of home and living.

“If you’re currently a provider that has 100 SDA properties, you need to decide in the coming years whether you are in property or disability support, because you can’t be in both.

“I think the federal government will greenlight all the recommendations, and the disability sector more broadly will enter another period of uncertainty, and we’ll potentially see a whole bunch of SDAs coming on the market in five or ten years, depending on when that separation timeline lands,” Mr Woolgar said.

How it will impact ongoing growth in the sector remains to be seen, but to the December quarter the number of SDA eligible NDIS participants grew 16 per cent in three years to 23,092. There was a 9 per cent growth in average SDA payments, up to $10,853 from $8,314 in 2020.

In the same period, overall SDA payments increased 31 per cent from $102 million to $230 million, and total SDA supports were up from $176 million to $365 million, to support what is 3.5 per cent of all 646,449 NDIS participants nationwide.

NDIS housing challenges

Growth in the sector, however, does not indicate the challenges for investors and Mr Woolgar said he signposts every investor meeting on that point.

“My ultimate driving goal is to ensure not one SDA bedroom is wasted, by which I mean, poor quality or poor location, so I’m personally motivated to make sure SDA is successful,” he said.

“I’ve worked with a range of investors, from mums and dads, banks, super funds, big-scale institutions and whoever I’m talking to it’s from a very, very practical perspective about the challenges, the risks, and the timeframe.

“I get a lot of developers who expect to have cashflow within 12 months but in SDA, you’re lucky if it’s in the two-to-three-year time frame.

“I also very consciously turn off the kind of people we don’t want building SDA,” Mr Woolgar said.

Developers who invest purely for profit generally don’t remain in the sector, he said, but those motivated by moral, ethical, or personal reasons do.

“There are some very ethically driven institutional investors out there, right through to providers who are doing it purely because they need to provide a solution, and there are mums and dads doing it to solve that problem of what happens to the loved ones they leave behind after they die.”

SDA not a simple money maker

Housing Hubs, CEO, Alecia Rathbone said misinformation suggesting SDA is easy, low risk and offers high returns is an overarching issue, and while investors must examine their motivation and commitment, they must also understand vacancy rates and demand.

“There is a misconception that it is easy to find tenants but it’s time consuming and challenging to find tenants for SDA properties, and it’s not just a case of build it and they will come; providers need to consider tenants’ needs and preferences against the property’s features and support model,” Ms Rathbone told API Magazine.

More than 25 per cent of new SDA last year was vacant and it can take up to six months to fill a single vacancy, within the design category Fully Accessible apartments, which had a 55 per cent vacancy rate (The Housing Hubs SDA Provider Experience Survey 2023).

Fully Accessible apartments also account for 44.5 per cent of all SDA dwellings and 30 per cent of SDA places (bedrooms) currently in development.

“This is often underestimated. Our SDA provider Experience Report also shows many SDA providers face financial pressure due to high vacancy rates and delayed payments from the NDIA, and among respondents, $1.9 million in payments were found to be overdue.

“Sixty-three per cent of providers said the time the NDIA takes to make SDA decisions is ‘extremely challenging’ and 78 per cent received less income than anticipated for their SDA,” Ms Rathbone said.

Of the 2,287 dwellings currently in development between apartments (37.7 per cent), houses (33.1 per cent) and villas/duplexes/townhouses (23.6 per cent), two thirds will accommodate one SDA resident only.  

Jeramy Hope, CEO, Specialist Disability Accommodation (SDA) Alliance, which represents providers, institutional investors, developers and builders, emphasised that understanding demand is key.

“Do your research and be realistic with proposed projected returns, factoring in location, potential vacancy rate, and ongoing maintenance costs that could be above SDA payments and rental return,” he said.

“The SDA Alliance expects there will be a modest investment return within the SDA market, with some not seeing the full potential of return unless building at scale,” Mr Hope said.

“It may be beneficial to look at other registration types, such as Fully Accessible, High Physical Support, and Robust but take your time; SDA homes are a long-term investment and there are risks associated with it.

“As an example, in thin markets it could take as long as a year to fill a vacancy, and with participants having the choice to relocate you need to be able to ensure your pipeline and relationships within the market are strong,” Mr Hope said.

Michael Lynch, Chair SDAA, added that the SDA market is nuanced and investing in one or two properties without the ability to diversify risk could be problematic.

“In many cases properties are being offered in new subdivisions, away from established infrastructure and services and build quality is important because we’ve seen house and land turn-key properties being offered at prices significantly below the cost that our members are developing properties.

“This may be fine now but ultimately you will be competing potentially with high-quality, well-located properties that will be more attractive to NDIS participants.

“At the end of the day, if it sounds too good to be true, that’s because it likely is.”

Mr Woolgar said he feels the right type of SDA in the right location still offers a ‘fantastic’ opportunity for investors.

“It’s one of those rare situations where everyone involved can have a win; the investor, the SDA provider, obviously the people living there, but it’s got to be done properly and for the right reason.

“Building a below-standard, three-bedroom home in those last couple of lots at the back corner of your subdivision because you couldn’t sell them, is not good SDA, no-one wants to live there and that’s why you couldn’t sell the lots.

“It doesn’t mean a person that is already socially isolated is going want to live there either, so good SDA, done well for the right reason is still a wonderful opportunity but it’s not for people who aren’t committed to go on the journey.

“If investors are thinking it’s 12 months, even two years and they’ve got this wonderful 20-year cash flow, they’re wrong, so you’ve got to be really committed and go into it with your eyes wide open.”

ASIC’s SDA warning

Offers of high rental yields from SDA investments by some companies do remain in the market but as Australian Securities and Investment Commission (ASIC) Deputy Chair, Sarah Court, recommends, investors should be sceptical about anything promoted as “government-backed” or providing “guaranteed, or secure returns”.

“As we understand, any government funding is attached to the NDIS participant, and not the property itself,” Ms Court said.

“Investors should be aware that investment schemes, generally, are not government-backed and are run independently from government.

“Investors should exercise caution if investments are based on these promises,” Ms Court said.