The National Disability Insurance Scheme (NDIS) and Specialist Disability Accommodation (SDA) have transformed the lives of Australians with disabilities, providing them with greater choice and control over their support and housing. However, in NSW, the financing and valuation of NDIS/SDA properties have become increasingly complex, posing significant challenges for investors, developers, and participants. WLP Finance recently settled a purchase of SDA properties with a provider looking to house people with disabilities. There are significant issues in the liquidity of the market which presented a number of challenges that had to be overcome to get a positive result for our client.
Financing NDIS/SDA properties has become increasingly difficult due to the nature of these investments. Banks are hesitant to lend due to the complexity of NDIS funding and the risk of participant vacancies. The financing hurdles have resulted in a shortage of funding for SDA property developments which creates a vicious cycle. A report by the Community Housing Industry Association found that "the lack of funding for SDA property developments is a significant barrier to the delivery of new supply". This shortage of funding has serious consequences for participants, who are forced to wait for extended periods for suitable housing options. The financing and valuation challenges have significant implications for NDIS participants. Delays in the development of SDA properties have resulted in a shortage of suitable housing options, leaving many participants without access to adequate accommodation (NDIS, 2022). This shortage has resulted in participants being forced to live in unsuitable housing, which can have serious consequences for their health and wellbeing.
A subsidiary issue with financing the properties is the lack of standardized valuation methodologies for SDA properties. According to a report by the Australian Institute of Valuers, "the unique characteristics of SDA properties make it difficult to determine their value using traditional valuation methods.” SDA properties are designed to meet the specific needs of participants, incorporating features such as wheelchair accessibility, hoists, and smart home technology. These specialized features, combined with the varying locations and sizes of SDA properties, make it challenging to determine their value. The absence of standardized valuation methodologies has resulted in inconsistent valuations, making it difficult for investors to secure financing. A study by the University of New South Wales found that "the lack of transparency and consistency in SDA property valuations is a significant barrier to investment". In our case, the residential valuation was significantly lower than the approved use SDA value, meaning a specialised lender that understood the risks and nature of the assets.
In the negotiation process with various lenders, WLP finance looked at placing our transaction with a lender that understood the risks and implications of a primary vs alternate use valuation. Whilst the borrower did have to contribute additional security to support the loan, understanding the clients strategy and alternate use valuation lead to an approval with capitalising interest to allow for the client to trade up and provide accommodation for disabled tenants. There are some systemic issues within the lending environment that need to be addressed long term, but in the short term, access and knowledge of specialist lenders and the risks and mitigants of the transaction is what we bring to the table to get a transaction done.
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