Home Property Australia Build-to-rent investment on the up, policy changes fundamental

Build-to-rent investment on the up, policy changes fundamental

  • May 01, 2024
  • by Property Australia
Conal Newland, Head of Operational Capital Markets at Savills Australia

The Australian build-to-rent (BTR) sector is booming, with potential to aid the government’s goal of 1.2 million new homes by 2029, according to Savills Australia’s report, ‘Australian Multifamily Market & Trends’.

Savills notes tight residential vacancy rates in major cities due to reduced purchasing affordability and fewer off-plan sales to investors. Despite this, BTR stands out as a resilient asset class, with investment volumes skyrocketing 361 per cent in 2023 compared to the previous five-year average.

Currently, Australia has 13,265 BTR units under construction, representing one per cent of the government’s 1.2 million target. These are set for completion within three years.

Additionally, a pipeline of over 32,000 BTR apartments, pending planning approvals, could be delivered by the end of 2028.

Conal Newland, Head of Operational Capital Markets at Savills Australia said “unlocking the significant pipeline of BTR development projects should be a key focus to help reach the ambitious housing delivery target of building 1.2 million new well-located homes over the next five years”.

Savills’ analysis suggests that while over 32,000 BTR apartments could be approved and ready by 2028, but Saviills said only 42 per cent of them are funded and likely to be completed. The feasibility of the remaining 19,000 units is uncertain due to lack of funding or viability issues with previously capitalised developments.

Savills aid that a change in the Australian tax landscape will further spur investment, with the reduction in Managed Investment Trust (MIT) withholding tax to 15 per cent for foreign investors in BTR – expected to take effect from 1 July, 2024.

“Policy changes at a federal level are fundamental to ensuring that the true growth potential of the BTR sector is fully realised,” said Mr Newland.

2023 modelling from EY, commissioned by the Property Council, showed that implementing a 15 per cent managed investment trust (MIT) withholding rate, without an affordable housing mandate, could lead to the creation of 150,000 apartments by 2033.  

Further EY research showed lowering the MIT withholding tax rate to 10 per cent for BTR projects with an affordable housing component could accelerate the delivery of 10,000 affordable homes over 10 years on top of those 150,000 rental homes. 

Property Council Group Executive Policy and Advocacy Matthew Kandelaars said technical details of the draft legislation will make or break the delivery of these new homes and to achieving our national housing target. 

In 2023, the BTR sector captured eight per cent of all transactional dollars across the Australian real estate market – considerably above the five-year average of one per cent, according to Savills.