How is SDA Income Calculated?
When discussing SDA with investors, lenders or stakeholders, it doesn't take long for the conversation to turn to the income of the property, and just how "all that works".
As canvassed in the first Capstone SDA newsletter, Australia has a vanilla residential investment sector. SDA presents a level of complexity not seen in your typical residential deal, so for this installment of the Capstone SDA newsletter we'll breakdown the one of the building blocks of SDA and look at what drives the income for a property, and the factors to consider when assessing a deal.
Income for an SDA property is dictated by the federal government via the National Disability Insurance Scheme (NDIS). The NDIS publishes the NDIS SDA Price Calculator annually, this is an excel spreadsheet which lets a user input the different elements of a build to calculate potential income of a property. The end result is the Gross Potential Income for a project.
For new construction, there are six factors that drive income. They each contribute to the overall Annual Income associated with that configuration of property. They are:
Building Type:
There are three main sub categories for the building type: Apartment, Villa/Duplex/Townhouse and House. Within each building type there are categories for the number of participants living in the dwelling. For example: "Apartment, 1 bedroom, 1 resident"; or, "House, 2 residents".
There are two more categories that are not commonly viewed as an option, being "Group Home, 4 residents" and "Group Home, 5 residents". The NDIS is trying to shift away from the Group Home model of care to give the participant more independence in their living situation. At Capstone, we do not build Group Homes.
Different Building Types attract different levels of funding, commensurate with the costs associated with development and the need in a given location.
Design Category:
There are four levels of design category, these relate to the level of disability the property caters to. On a stand alone basis, the higher the design category, the higher the needs of the participant and the higher the funding it attracts. The categories are:
Improved Liveability: housing with better physical access. IL may include features for people with sensory, intellectual or cognitive impairments. For example: high contrast colour between the floor, door frames and walls; open plan living areas for visibility between support workers and participants; or, open bathrooms with step free showers and detachable shower heads.
Robust: this design category may suit people who need help managing complex and challenging behaviors. As such, the property is built with very strong and durable materials. For example, secure windows, high impact wall lining, fixtures and fittings, and laminated glass.
Fully Accessible: housing with a high level of physical access features. For example: provision of wheelchair passage through the whole dwelling (wider doorways), lower kitchen and laundry benchtops, and appliances.
High Physical Support: housing that includes a high level of physical access for a high level of support. This includes: structural provisions for ceiling hoists, wider doorways to allow for wheel chair access, back up power supply and provision for assistive technologies (voice activation, electric blinds).
These explanations have been compiled from the NDIS and Accessible Homes Australia information pages and be accessed at the respective links above.
The costs and requirements of the property differ depending on the level of design category, commensurate with the needs of the participant. Generally speaking on a stand along basis, a higher design (eg: Fully Accessible) will attract higher funding than a lower design category (eg: Improved Liveability).
With or without Onsite Overnight Assistance (OOA)
Onsite Overnight Assistance is a care provider who (you guessed it...) remains at the property overnight to assist participants. Including OOA (an additional bedroom) provides the participants with the opportunity for better care in their home and a better work environment for the care giver. At Capstone, all of our properties have OOA for this reason. We also include separate bathroom facilities for the care provider to enhance the working conditions. They do a wonderful job and are the unsung heroes of SDA.
The importance of OOA to the NDIS is reflected in the impact to funding, inclusion of OOA increases the income potential for a property.
With or without Fire Sprinklers
Properties can be built with or without fire sprinklers. The inclusion of fire sprinklers in a build increases the funding available for that property, in the vicinity of $8,000-$12,000 per year depending on the building type and design category. At Capstone, we always include fire sprinklers in our building and designs, not only do they make sense financially but they drastically reduce the fire hazard in a property and increase safety to participants.
A contractor once remarked to me that fire sprinklers can be dubbed 'the iron firefighter' given their role in helping fight the flames and importance in preventing the spread of fire.
Input Tax Credits: claimed or unclaimed?
This relates to whether the developer is claiming the GST credits back on the cost of construction or not. Typically GST cannot be claimed for developments that are intended to be held long term, only on properties that have the intention to be sold on completion.
By claiming Input Tax Credits the income for a property is lower, the rationale being that the cost is reduced by the amount of GST claimed.
On a side note, allowing GST to be claimed on the cost of construction would be a very straightforward way to lower the cost of construction, but I digress...
Location
Location is one of the biggest drivers of the income for a property alongside Design Category and Building type.
The point of the location factor input is to account for the difference is cost associated with building in somewhere like Bondi Beach, versus say Wagga Wagga. It is important to note that location is shown at the "Statistical Area Level 4 or SA4" georgaphical level. This is a statistical designation used by Australian Bureau of Statistics. Instead of "Bathurst" or "Tamworth" you'll need to select "NSW - Central West" or "NSW - New England".
The way this works in practice (in a completely hypothetical example for the purposes of the explanation) is if par value of income for a given property is $100,000 (1.0), then Bondi Beach with its expensive real estate and fancy views will attract a loading factor of 1.3 (and income of $100,000 x 1.3 = $130,000). While a place like Wagga Wagga, with lower land and construction costs and award winning beach, will have a location factor of 0.85 (and income of $100,000 x 0.85 = $85,000).
There is a lot of analysis and actuary data that sits behind these location factors, and they differ for a given location depending on building type. Adjusting the location factor is one way the NDIS can shape supply across regions.
The Sum of the Parts
These six factors combine to produce the income for the property on a per room basis. The sum of these rooms is the total income for the property. Each factor impacts the overall income calculation differently, relative to the others inputs included in the calculation and it is important to sense check inputs against the reality of a given market (ie: apartments can attract high income, but are not suitable for regional Australia).
If you have any questions or would like to discuss SDA, please reach out via the email below or our website.
Angus Isles
angus@capstonedg.com.au