What’s holding back build-to-rent in Oz?

By Michael Mata | 07 Sep 2017
While increasingly commonplace in London and parts of the United States, the build-to-rent model for housing development is still an untapped market in Australia.

The nation’s superannuation funds and many of the big developers – including Lendlease, Mirvac, and Grocon – are talking about it publicly. Lawyers are busy positioning themselves for it, and NSW Treasurer Dominic Perrottet has just established a working group to assess the viability of the build-to-rent model.

Mirvac recently announced it was preparing to launch Australia’s first build-to-rent apartment vehicle with the backing of major superannuation funds. The real estate group has earmarked a site in Sydney with the aim of drawing institutional investors into a business that could ease stress in expensive housing markets.

Mirvac said it plans to build and hold units in capital cities, supported by major super funds with returns derived from rentals paid by residents.

According to Matthew Cranston, a journalist for The Australian Financial Review, if a developer can obtain the backing of a major institution, such as super fund, they could build on a large scale with a long-term view. These new properties could then be rented out at a more affordable rate, which would not only help solve the housing affordability crisis, but would also provide a long-term income stream to thousands of Aussies who have superannuation.

Australia’s REST Superannuation is already established in the American market, and has 3,000 build-to-rent apartments stretching from Boston, MA, to Austin, TX, operated by Greystar.

Paul Healy, CEO of Property Funds Association of Australia, remembers when American investors ventured into Australia and saw all the apartments being built. “They were aghast that all the towers being built were all strata and that there wasn’t one single owner [of the whole tower],” he said.

“If you took the percentage of institutional investment in residential property globally and applied that to Australia you would have a potential $7 billion to be invested,” Cranston said.

According to Bryan Reid, vice president of global real estate research at MSCI, if the build-to-rent model was able to attract such a level of institutional capital, it would equate to about 30,000 new apartments in Australia.

Adam Hirst, Mirvac’s general manager for capital allocation, said the reason the concept hasn’t really taken off in Australia is mostly because of tax complications.
“GST and tax on residential property income are the two thorns in the side of the build-to-rent sector. While there are credits and exemptions for those developers who build social housing (where welfare payments are used to pay the rent) or affordable housing (which is defined as providing accommodation for essential workers) the private build-to-rent sector is still whacked with a big tax bill,” Cranston said.

“The US and the UK do not place these two constraints on developers of build-to-rent properties and also have local planning schemes that help the build-to-rent sector,” he added.

Related Stories: Legislation Is Delaying Property Development


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