Australia’s build-to-rent pipeline grew by 68 per cent in just one year and is fast approaching 15,000 units, as tax and planning reforms in some states help the new asset class gain a foothold.
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Three key takeaways:
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Established players and new market entrants are stepping up their investment in build-to-rent, following the relative outperformance of the asset class in the COVID-19 era.
Mirvac has completed projects at Sydney’s Olympic Park and has set its sights on 5,000 build-to-rent apartments under management within five years. Lendlease is looking to convert some of its proposed developments, while Queensland has new large-scale schemes underway led by Frasers Property Australia and Mirvac.
In February, US build-to-rent specialist Greystar amassed a $1.3 billion war chest to fund new Australian projects. The fund’s first two projects are expected to kick off in inner Melbourne later this year and will deliver around 1,300 new rental homes and create 2,000 jobs in construction.
According to Puian Mollaian, CBRE’s associate director of structured transactions and advisory services, offshore institutional funding accounts for around 57 per cent of the total pipeline.
Melbourne’s development pipeline represents more than 50 per cent of the national market, CBRE says, while Sydney accounts for around a quarter.
“Victoria and Queensland are generally supported by greater availability of suitable development sites and lower barriers to entry, in comparison to Sydney where site values remain comparatively elevated,” Mollaian explains.
In response, the NSW Government has introduced a “fit-for-purpose planning and tax regime,” including a 50 per cent cut to land tax and an exemption from foreign investor surcharges for eligible developments until 2040. This will give the sector a “shot in the arm” says Property Council NSW executive director Jane Fitzgerald.
“The planning changes not only acknowledge that build-to-rent is a different housing ‘product’ to build-to-sell but also provide clear guidance to investors, developers and consent authorities,” Fitzgerald adds.
The Property Council’s WA division is advocating build-to-rent as a solution to Perth’s looming rental crisis while also supporting the state’s economic recovery.
Sandra Brewer, Property Council WA’s executive director says “every $1 million spent on residential development generates nine full-time equivalent jobs”, while between 10 and 12 full-time positions are required to maintain build-to-rent projects during operation.
Brewer says the economics of build-to-rent are still “finely balanced”. Without reforms and incentives WA will lose out to other more favourable jurisdictions, which is why the Property Council is calling for land tax exemptions for WA build-to-rent projects. “This would simply level the playing field with other residential assets,” Brewer says.
Meanwhile, build-to-rent continues its strong growth trajectory in other markets. In the UK, the number of completed build-to-rent homes increased by 23 per cent in 2020, according to research by the British Property Federation. Build-to-rent accounted for a fifth of all new homes in London in the final quarter of 2020.