More than $5 billion in capital will need to be invested into specialist disability accommodation over the next five years, but the sector remains “substantially under-supplied”, says m3property.
Three key takeaways:
Australia’s specialist disability accommodation, or SDA, has been fragmented and underfunded, but the National Disability Insurance Scheme is creating a new market for better quality accommodation that delivers a solid return for institutional investors.
Casey Robinson, m3property’s director of research for Queensland, says the market has “sound investment fundamentals” but a “general lack of understanding” about its complexity and undersupply have hampered its growth.
According to the NDIS, more than 28,000 people are eligible for SDA. This has the potential to create an additional 12,000 housing places for people with disability, with a further 16,000 places needing to be refurbished or rebuilt. A total of $12 billion of capital will be required, of which at least $5 billion will be new capital.
The NDIS has an annual recurrent budget of $700 million, indexed over the next 20 years, for SDA providers. This budget aims to incentivise investment but just $148.4 million was committed by the conclusion of 2019.
The Specialist Disability Accommodation White Paper, published by m3property in April, found that while SDA typically requires moderately higher entry costs, investment returns are generally significantly higher than traditional residential housing.
“Based on a 20-year cash flow, m3property sales analysis indicates running yields on net operating income of between 8 and 14 per cent. At the same time participant demand for SDA housing continues to grow,” Robinson explains.
Investment activity over the last 12 months includes Arena REIT’s $23.95 million acquisition of three SDA funded properties in Adelaide on a reported initial yield of six per cent.
In April, the Paul Ramsay Foundation, Hesta and Suncorp invested $26.5 million in the Synergis Fund, which currently has 11 homes under development across three states. The fund is targeting $600 million of investment over the next five years with plans to scale to $1 billion.
Australian Unity has also launched an SDA fund with a capital raising of $39 million. The initial investment includes 33 SDA apartments and five carers apartments across Melbourne.
And in late 2019, NAB committed $2 billion to loans and financing avenues for affordable and specialist housing, including SDA.
The sector is attracting growing investor interest, but some states are “significantly” under-supplied, Robinson adds. Victoria is undersupplied by 2,411 units, New South Wales by 1,971, Queensland by 1,716 and Western Australia by 1,282, m3property data reveals.
Laila Burnet, m3property’s national director for health, aged care and seniors living, says the strong investment fundamentals include “unabated participant demand and an increasingly transparent investment and operational landscape”.
The asset class can adapt to alternate markets such as aged care or general residential, Burnet adds.
According to m3property, COVID-19 has stalled some investment, but the fundamentals of the sector remain strong.