Build-to-rent gained a boost last week with the launch of Australia’s first dedicated BTR debt platform. But getting projects off the ground will remain a challenge until governments step up.
Investment firm Qualitas has announced a new fund, backed by $125 million from the Clean Energy Finance Council, for energy efficient, low-emissions BTR residential buildings.
BTR – also known as multi-family housing – is purpose-built residential accommodation that is held for long-term rental, rather than sold to strata purchasers.
While new to Australia, the asset class is well-established in the United States and Europe, and more recently the United Kingdom.
Qualitas has already identified a pipeline of five significant projects totalling $700-plus million in loans.
“Around one in three households in Australia are renters, and this number is increasing,” says Tim Johansen, Qualitas managing director and global head of capital.
“Yet new housing starts have fallen in recent years, putting pressure on future supply and rental prices. It’s clear that a new approach is needed and BTR is part of the solution.”
The model also incentivises energy efficiency and renewable energy technologies as the upfront costs are recouped during operations and in long-term asset value.
The Qualitas fund promises to finance housing that reduces greenhouse gas emissions by at least 35 per cent compared with the current building code, for example.
Ian Learmonth, CEFC’s chief executive officer, says BTR is “unique” because developers are able to invest in energy saving initiatives “that generate value over the property’s life by reducing operating costs and the exposure to rising energy costs, while contributing to higher valuations”.
Momentum builds for BTR
Qualitas’ debt fund is just the latest in a string of announcements accelerating the BTR sector.
Last week, the NSW Government lodged its planning proposal to deliver 400 new BTR homes in Redfern Park. Land and Housing Corporation chief Mick Cassel promises the development at 600-660 Elizabeth Street would be “the first government-backed mixed tenure BTR residential development in Australia”. This model is a new initiative for the NSW Government, Cassel says, “and allows us to retain ownership of the land and leverage the private and not-for-profit sectors to help deliver new housing and open space for the community”.
Mirvac launched its $1 billion BTR ‘club’, also backed by CEFC funding, in 2018. Mirvac’s first foray into BTR, the $200 million Indigo development at Sydney Olympic Park, is just three months away from completion. With three Melbourne projects underway at Queen Victoria Markets, Brunswick and Spencer Street, Mirvac has 1,600 BTR apartments in its sights.
BTR forms part of Mirvac’s strategy to meet net positive carbon targets by 2030. At Indigo, for example, a $886,000 investment in sustainable design, representing 0.7 per cent of capital cost, is expected to save $337,000 annually on energy costs. About half of these energy savings will flow to residents in the form of their energy bills.
Meanwhile, Oxford Properties, the real estate investment arm of one of Canada’s largest pension funds, has entered the BTR market in Australia with a 39-storey residential tower above Pitt Street Metro.
Greystar, which manages around $160 billion-plus of assets across 200 global markets, recently acquired two adjoining sites in Melbourne’s South Yarra to build a mixed-use precinct with more than 500 BTR apartments.
And Lendlease has recently announced a new £80 investment in 188 BTR homes at its London development, Elephant Park, backed by the Canada Pension Plan Investment Board. This follows a deal struck between the developer and CPP Investments in 2018 with an initial £1.5 billion target in BTR.
Obstacles and opportunities
BTR is “akin to long-term investing in an office or a shopping centre,” explains the Property Council’s executive director of capital markets, Belinda Ngo.
“In offshore markets, BTR housing is categorised as a low-risk, core real estate asset class for institutional investment, often with outperformance in total returns to office and retail.”
BTR improves the resident experience, offers longer-term tenure and professional lease management, and adds to the spectrum of housing options, Ngo adds.
“There are broader economic benefits too, as BTR can support jobs and economic growth during cyclical residential downturns.
“The investment of capital at scale means that significant new projects can be developed even when individual households have withdrawn from the broader market for cyclical or confidence reasons.”
Ngo says state governments have a “significant role to play” in removing disincentives embedded in their land tax, zoning and planning regimes to encourage investment.
The federal government can also encourage experienced overseas capital by adopting a 15 per cent withholding tax rate for managed investment trusts.
“BTR investments are currently taxed at 30 per cent – double the rate of other forms of institutional real estate – and this remains a key barrier,” Ngo concludes.