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STAR Investment Scheme – How does it work?

Wednesday, 30 August 2023

Challenges in the housing sector, including construction inflation, increased financing costs and interest rate induced softening of yields, threaten to derail the Government’s target of 18,000 new cost rental homes to be delivered by 2030. The Secure Tenancy Affordable Rental investment scheme ("STAR") has been launched to assist in addressing viability challenges for developments by providing equity investment to stimulate the creation of cost rental accommodation, with rents at least 25% below market rents. 

How does it work?

Cost rental units assist eligible households in the private rental sector who are unable to afford market rents, by providing secure tenancies at rents which are significantly below market rates. As the term “cost rental” suggests, rents are charged only to cover the cost of delivering, financing, managing and maintaining the properties. 

Private providers and Approved Housing Bodies ("AHBs") can apply for an equity investment under the scheme in return for delivery of homes designed as cost rental homes for at least 50 years, to be let at a minimum of 25% below market rents in high demand urban areas. Up to €750 million of State funds is available for investment in the delivery of over 4,000 cost rental homes. The scheme is time limited and subject to a strict sunset clause; all units in receipt of investment must be completed by the earlier of two years after the commencement date or 31 December 2027.

How much is the equity investment?

The equity investment available under the scheme is designed to provide market operators with compensation for the public service obligation taken on in providing cost rental housing under the parameters of the scheme. The investment shall not exceed the costs incurred less revenues obtained, with provision for a reasonable profit. The amount of investment will depend on the costs and revenues outlined in each proposal, subject to a maximum ceiling of €150,000 per unit nationally, with a higher threshold for Dublin and additional investment available for meeting certain sustainability criteria.

AreaMaximum STAR Investment per unit in €Maximum STAR Sustainability Investment per unit in €Maximum Total STAR Investment Available per unit in €
Rest of country150,00025,000175,000

How do I apply?

The Housing Agency is managing the STAR scheme on behalf of the Department of Housing, Local Government and Heritage. The Scheme is open to all potential providers, including consortiums (e.g. developer together with long-term owner, operator and manager of the units), AHBs etc., subject to the eligibility criteria outlined in the Scheme.

There is a three stage application process:  

  1. Expressions of Interest from proposers for eligible schemes.  The Housing Agency is now accepting proposals that it will assess against high-level criteria to select applications to progress to the second stage. 
  2. Detailed due diligence assessment process, involving a full assessment of costs.  Suitable proposals identified in the second stage will progress to the final stage.
  3. A Cost Rental Investment and Equity Participation Agreement (the “Agreement”) may be entered into with qualifying proposers, subject to availability of resourcing, completion of legal due diligence and the approval of the Minister for Housing, Local Government and Heritage.   

The amount of investment will be determined by the Housing Agency during Stage 2 of the application process and reviewed at Stage 3 based upon actual costs and revenues to ensure no overpayment occurs.

What Ts & Cs apply?

All developments funded under the STAR scheme will be regulated under the cost rental legislation, the residential tenancies legislation (as it applies to cost rental tenancies) and the terms and conditions of the Agreement.  

During the 50-year term of the Agreement there will be no interest charged or return payable to the Housing Agency, unless the property owner breaches the terms of Agreement.

The State will ultimately require return of the equity investment together with the Property Realisation Equity Share (“PRES”). The PRES shall be a percentage of the market value of the property less the initial capital cost, calculated by reference to the value of the equity investment as a proportion of the total equity invested into the project by both proposer and the State. The requirement to return the equity investment and PRES may be triggered by:

  1. The end of the cost rental status at the expiration of the 50-year period, unless the owner extends the Agreement and the cost rental designation (see below).
  2. The property ceasing to be available for cost rental. This could be due to enforcement action, change in law, breach/default by the owner or other extrinsic events.
  3. The property owner failing to comply with the cost rental legislation.

The State’s investment will be secured by a fixed charge on the properties, which may rank after a charge from a lender providing acquisition or development finance, subject to an intercreditor agreement.  

At the end of the 50-year term of the Agreement there will be three options: 

  1. Extend the Agreement (and the cost rental designation) for an agreed period. 
  2. Make a repayment to the Housing Agency and exit cost rental designation. 
  3. The Housing Agency may exercise an option to purchase the dwellings from the owner for market value, taking account of the State’s investment in the properties. 

If you wish to discuss any of the issues raised in this article, please contact Alison O’Sullivan, Michael Walsh, Neil Dunne, or Ronan Egan from our Property/Real Estate Team or your usual ByrneWallace LLP contact

DISCLAIMER: This article does not contain legal advice. You are advised to seek independent professional advice on any specific queries.  All information is current as at 29 August 2023.