A relatively new development model in Australia called build-to-rent is on the horizon and is considered a “force for good” to make a difference with new business opportunities.
New in Construction : Build-To-Rent
Essentially, build-to-rent is a mixed-tenure model accommodating social and affordable housing.
The premise is that government can partner with the private sector to help alleviate rental accommodation scarcity, provide discounted rental opportunities, and improve social housing accommodation to provide stability to vulnerable people least able to access and sustain housing through other housing options.
The good news on the construction front is that there is the potential for many jobs to be created.
How is Build-To Rent different to ‘normal’ renting?
The difference is that build-to-rent residential apartments are owned wholly by the developer. The developers do not sell the apartments to individual owners to then reside in or rent out as part of their investment portfolio – this is the build-to-buy/sell model we are more familiar with.
However, build-to-rent can be considered a new form of property investing. It often operates as a managed investment trust for individuals to invest in the companies that create the build-to-rent developments, providing individuals with a source of income. Often, the developments can also have institutional investors such as a superannuation fund.
Another big difference is that there isn’t a body corporate in place (owner-occupiers and owner-investors on a committee) to manage the overall site. Therein, there would need to be adequate regulations on the owner/developer of the build-to-rent as Australia moves forward with this unfamiliar development model.
What’s happening in Brisbane?
In partnership with the Queensland government, Mirvac is building a dual-tower $270-Million LIV Anura project in inner-city Newstead. There will be 395 apartments, of which approximately 100 will be affordable rental housing.
Angela Buckley, GM of Build-To-Rent at Mirvac, says they are at the exploratory stage to see where the model can lead, with an initial focus on providing affordable yet quality accommodation close to where people are employed. Mirvac has also recently partnered with a national community housing provider to learn more about requirements moving forward. It is anticipated that the completion date for this build-to-rent project will be 2024.
Meanwhile, Frasers Property Australia is collaborating with the Queensland government to build affordable housing options in Brisbane’s Fortitude Valley, Brunswick Street precinct. According to a Frasers Property media release, they will ‘own and operate the development with the State Government subsidising the rental of 144, or 40 per cent, of the apartments by 25 per cent. The remaining 210 apartments in the building will be offered at market rental’. The CEO of Frasers Property states that this build-to-rent project will set a ‘model which will encourage further partnerships between government and the private sector and stimulate institutional investment in this new asset class’. Completion of this build-to-rent construction is anticipated for the end of 2024. To read more on Frasers Property’s build-to-rent news click HERE.
What’s happening in Victoria?
According to the Urban Developer, build-to-rent developments will be ‘exempted from absentee owner surcharges for up to 30 years under changes unveiled by the Victorian government in an effort to bolster the burgeoning sector’, in addition, if completed before 2032, to be eligible for a ’50 per cent land tax discount for up to 30 years’.
To read the whole story, including challenges raised by The Property Council that will need to be addressed for a successful outcome, visit HERE.
Otherwise, Landream has plans for a 41-storey, $105-million build-to-rent tower near the Queen Victoria Markets. There will be challenges with preserving heritage buildings, and long-existing iconic laneway graffiti artwork will be lost. To read more, visit HERE.
Meanwhile, the planning phase for a 500-apartment build-to-rent development in Melbourne’s inner west Kensington is underway, and completion is estimated to be by 2024. The Urban Developer reports that the project is ‘specifically aimed at three groups; key workers such as nurses and hospitality workers, people living with a disability and women aged over 55 who are at risk of homelessness’.
What’s happening in Sydney?
In Sydney, in recognition of the rising interest for build-to-rent opportunities, hotels are being sold and converted. According to CBRE data and the Urban Developer, ‘the strong performance in the hotel asset class was due to firm yields, unsatisfied capital and a scarcity of quality purchase opportunities’. No doubt, the lack of international travellers during the pandemic has also progressed the hotel conversions initiative.
It appears that even though the innovative build-to-rent mixed-tenure model is in its relative infancy in Australia and presents with some challenges, it is a model that is gradually gaining momentum due to a growing renting population.
The reality is that whilst we’ve had a surging owner/investor property market during the pandemic, not everyone can afford to be on the gravy train, and many are seeking alternative rental options. The build-to-rent model embraces joint-venture partnerships that focus on strengthening the social impact of inclusion, affordability, and sustainability.
According to Canstar, who spoke to Mirvac, ‘there are about 10,000 build-to-rent apartments currently in the pipeline to be completed in Australia, from various developers’. At the moment, Melbourne has Australia’s most build-to-rent developments lined up.
From our perspective, we feel it is a space to watch as there is the potential for many construction job opportunities to be created in the future if global trends are anything to go by.
(Sources: The Urban Developer 2021; Treasury Qld 2021; Qld Government 2021; Frasers Property 2021; Canstar 2021; Australian Housing and Urban Research Institute 2019; Domain 2021)
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