New rules for institutional investment offer certainty

Draft legislation supports existing stapled structures and will allow investment in build-to-rent, but tax levels for international investors in build-to-rent remain a concern, says the Property Council.

Last week, the Australian Government released revised exposure draft legislation regulating Managed Investment Trusts (MITs) operating within stapled structures.

The draft legislation includes long-awaited confirmation of the government’s proposed treatment of build-to-rent housing.

The Property Council’s chief executive Ken Morrison says the package brings “welcome certainty to one of the world’s most sophisticated real estate markets” and makes the “vital decision” to support build-to-rent housing.

In March, the Australian Government announced its intention to address perceived imbalances in the way the Australian tax system taxes foreign investors. Among the practices under scrutiny were stapled structures used by MITs.

A stapled structure allows property groups to ‘staple’ together passive investment in institutional real estate with an active property business, such as development, under the one ownership structure. Each part of the business is then taxed appropriately.

Morrison says the government has recognised that “compliance concerns with stapled structures relate to sectors other than property” and that “existing stapled structure arrangements are in the best interests of almost 15 million Australians who invest in commercial real estate through their superannuation”.

Institutional investment in build-to-rent housing is also one step closer, with the exposure draft removing a key impediment in the tax system – the ability for MITs to own residential real estate.

Morrison says the move will unlock investment in rental housing and support more choice for “the more than six and a half million people who live in rental accommodation in Australia”.

The Property Council is concerned, however, that the package “sets up an imbalance in the investment playing field”. Under the new laws, international investment in build-to-rent MITs would be taxed at twice the rate of those in office buildings or shopping centres.

“We urge the government to reconsider this setting,” Morrison adds.