Billions invested in Build to Rent Australia: Challenges and Progress
Building on the foundation of a transformative year, 2023 emerged as a defining chapter for Australia's Build-to-Rent (BTR) sector. As the country navigated through the aftermath of a global pandemic, the BTR landscape witnessed a gradual yet significant evolution.
At the onset, the industry braced for a slow start, echoing the cautious optimism prevalent across various investment classes. Factors such as inflation, escalating debt costs, and persistent land values posed initial challenges, setting the tone for a year characterized by resilience and adaptation.
Rapidly recovering from the pandemic-induced downturn of 2020, Australian rents not only rebounded but surged past pre-crisis levels. This remarkable resurgence was underpinned by a surge in Net Overseas Migration, coupled with a slowdown in the creation of new housing stock, painting a promising picture for the BTR market.
BTR 2023 Developments
| Amount (AUD) | Developer | Description |
|---|---|---|
$1.5bn  |
Sentinel | Locked in significant funding from Dutch pension fund PGGM, acquired projects on the Gold Coast (c. 300 units) & Villiers St, North Melbourne (c. 350 units) |
| $1.5bn |
Hines | Found backing (Aud$1.5bn) from Cadillac Fairview (Canada) and pursued Bank Street, South Melbourne (355 units) | $1.8bn |
Mirvac | Raised platform funding for their $1.8bn Liv platform through the CEFC & Mitsubishi (Japan) |
| - | Greystar | Acquired sites in Zetland (c. 182 units) and Collingwood with UEM Sunrise (400 units) |
| - | Home | Acquired a new project on Queens Rd, Melbourne (560 units) and submitted for town planning |
| - | Lendlease | Entered the market with partnerships for Melbourne CBD (797 units) & Brisbane Showgrounds projects (443 units) |
| - | Novus | Acquired Bowen Cr, South Melbourne (215 units) & a second Chatswood (NSW) project (257 units) |
| - | Super Housing Partnerships (SHP) | Launched an affordable housing/Build to Rent fund with Australian Super & Hesta |
| - | AXA IM Alts | Acquired a forward funded project with Deicorp in Westmead (400 units), partnering with St George CHP to manage the affordable housing |
| - | Cedar Pacific | Launched a fund-raising campaign for their BTR platform |
| - | Barings | Moved into Canberra with the acquisition of Dickson Village (140 units) on behalf of Aware Real Estate |
| - | Local South Melbourne & Golden Age | Local South Melbourne started construction & teamed up with Golden Age in Box Hill (425 units) for a turnkey investment |
| - | Tetris Capital, Icon Kajima & CHL | Awarded the Ground Lease Model Stage 2 as their second PPP with the Victorian State Government for approximately 1,400 units in a blend of Social, Affordable and Market rent housing through the 40-year landlease project |
The rental market, though robust, displayed distinct variations across different locations. While Melbourne CBD grappled with a vacancy rate around 5.00%, Fitzroy and Box Hill boasted significantly lower rates of 0.8% and 1.8%, respectively, underscoring the diverse nature of rental sub-markets.
As the year unfolded, the BTR sector witnessed a flurry of activity, marked by significant deals and strategic collaborations. Sentinel, for instance, secured substantial funding from the Dutch pension fund PGGM, acquiring two new projects on the Gold Coast and in North Melbourne. Lendlease made a notable foray into the market, partnering with Daiwa House (Japan) and Quadreal (Canada) for major projects in Melbourne CBD and Brisbane Showgrounds, respectively.
Hines, backed by Cadillac Fairview (Canada), pursued a significant project on Bank Street in South Melbourne, while Greystar expanded its footprint with acquisitions in Zetland and Collingwood. Mirvac, Novus, and AXA IM Alts were among the other key players making strategic moves in the BTR space, underscoring the sector's growing allure among investors.
On the operational front, 2023 witnessed the launch of several key BTR projects, primarily in Victoria, contributing to a burgeoning inventory of operational buildings. With 19 such buildings comprising over 5,300 units, the market gained crucial operational insights and credibility, paving the way for further growth and expansion.
Looking ahead, 2024 holds immense promise for the BTR sector in Australia. With the challenges of 2023 gradually fading, the market is poised for accelerated growth, buoyed by rising rental demand and robust investment sentiment. As the industry matures, the sale of operational assets is expected to provide the market with the much-needed transactional evidence, further solidifying BTR's position as a lucrative investment avenue.
Victoria
A new facilitated assessment pathway has been introduced for significant residential development with affordable housing. This involves a fast-track planning assessment pathway now available.
These changes position the Minister for Planning as the responsible authority for determining applications by fast tracking a range of residential development proposals.
Development Facilitation Program
Expediting planning approvals for significant residential projects that will increase affordable housing.
This amendment seeks to facilitate the renewal of public housing stock in a number of categories:
- Category 1 – Developments with a construction cost of over $50 million in metropolitan Melbourne or $15 million outside of metropolitan Melbourne, those which provide at least 10% of the total number of dwellings as affordable housing.
- Category 2 – Projects carried out by, with, or with funding from the State or a public authority which provide at least 10% of the total number of dwellings as affordable housing.
- Category 3 – Projects considered by the Minister for Planning to be significant, having regard to considerations including the percentage of dwellings proposed to be affordable housing, the location of the development in relation to jobs, services, infrastructure and community facilities, and exemplary design.
Incentives to increase the supply of housing
The Australian Government announcement to provide incentives to increase the supply of housing.
On 28 April 2023, the Australian Government announced it would provide incentives to increase the supply of housing, by:
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reducing the withholding tax rate for eligible fund payments from managed investment trusts (MIT) attributable to residential build-to-rent projects from 30% to 15%. This measure will apply from 1 July 2024 for income attributable to newly built build-to-rent projects. Currently, foreign residents from an information exchange country are subject to a final MIT withholding tax rate of 30% for income attributable to a residential property, including build-to-rent projects.
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increasing the capital works tax deduction depreciation rate for eligible new build-to-rent projects from 2.5% to 4% per year. This measure will apply to projects where construction commences after the Budget (9 May 2023) and will shorten the period that construction costs of eligible buildings are depreciated from 40 to 25 years.