Mirvac Group is preparing to launch Australia’s first major build-to-rent apartment vehicle with the backing of major superannuation funds, according to a new report from The Australian.
The real estate group has earmarked a potential site in Sydney as it looks to draw institutional investors into a business that could ease stress in overpriced housing markets. Mirvac plans to build and hold units in capital cities supported by major superannuation funds with returns derived from rentals paid by residents.
“Mirvac believes that the time has come for an institutional build-to-rent sector in Australia to provide better certainty and quality to tenants,” said Susan Lloyd-Hurwitz, CEO and managing director of Mirvac Group.
The sector has grown in size in the United States and it’s hoped it would find success in Australia too.
Governments in Australia have been closely examining generous tax concessions like negative gearing and depreciation of second-hand household items. The curbing of tax breaks could trigger more investments by large super funds in build-to-rent apartment vehicles as returns on traditional property assets have been producing lower returns.
Glenn Byres, the Property Council of Australia’s (PCA) chief of policy and housing, said that allowing managed investment trusts to develop or acquire affordable housing sends a positive signal to the industry, but emphasised that it was still a trial period for build-to-rent schemes.
“These are good first steps – and we see this as a sign the government understands it will need to progressively re-gear the policy settings to encourage more investment in a new rental market product,” Byres said. “But the federal government will need to go a lot further to get the scale of institutional investment required for build-to-rent product.”
The federal government is encouraging investment in new and existing affordable rental housing by increasing the capital gains tax discount, from 50% to 60%, for affordable housing, beginning on January 1, 2018.
As of July 1, 2017, managed investment trusts (MITs) were allowed to develop or acquire affordable housing to hold for rent.
Other analysts are more skeptical about the benefits of this asset class.
“It’s a specialised asset, built to serve a particular purpose (i.e. provide shelter for a very specific demographic). The investment potential of this untested asset class cannot be compared to stand-alone apartments and houses, which can be owned and rented by anyone,” said Simon Pressley, head of property market research at Propertyology.
“Governments don’t give away tax concessions for specialised property schemes without there being strings attached. NRAS is a good example of an affordable housing scheme which lured in property investors with rental guarantees and higher tax deductions. But, this was offset with significantly higher property management and body corporate fees and a very limited resale market,” Pressley said.
Taken at face value, the initiative sounds like a reasonable social strategy to address affordable housing concerns for those in need, especially in pricey markets like Sydney.
“It appears to have similarities to the former National Rental Affordability Scheme (NRAS) which was never designed for mum-and-dad investors but still managed to lure in plenty of people who subsequently became disappointed,” Pressley warned.