The build-to-rent (BTR) movement in Australia is finally receiving the acceptance for which its backers have strived. CBRE’s latest Build-to-Rent Development Pipeline report reveals the alternative property asset class proved virtually immune to COVID-driven disruption last year to grow by 70%. A record 40 projects are planned across major capital cities and regional centres, and no less than 11 developer groups have more than one project on the boil.
Helping fuel the growth are recent state government reforms around tax and planning laws that have made BTR a more viable development option. NSW and Victoria’s state governments injected fresh impetus into the sector by halving land taxes for BTR (the fee accounts for almost 30 per cent of costs) while Queensland has chosen to provide rental subsidies for units in selected projects. Major banks as well as the non-banking lending sector are also stepping up participation in the area. Particularly encouraging is the influx of offshore institutional funding which now accounts for almost 60 per cent of the total BTR pipeline reports CBRE, a situation sparked by the stable cash flow the asset class is delivering global investors in a low yield environment.
Well-established in the UK and US, BTR projects are built solely for lease rather than sale. They are retained by the developer who is also responsible for the property’s management. While BTR is a relatively new concept for Australians brought up with the dream of home ownership, it is now gaining the momentum seen in other parts of the world. In the UK for instance, the idea of whole apartment blocks built solely for rental was non-existent 10 years ago. Yet within a decade the sector has boomed and record levels of capital invested by big players. Key to BTRs rapid adoption are societal shifts, largely the increasing lack of affordable housing and an emerging generation with no aversion to renting and keen to live in modern, technologically advanced residences brimming with exceptional services, convenience and security.
For investors, the emergence of BTR is good news. CBRE found many institutions planned to increase portfolio allocations this year to real estate including BTR thanks to the resilience the asset class has shown during the pandemic. The land tax changes have also sparked the launch of products such as NSW’s first built-to-rent fund, The Places Build to Rent Fund (Places BTRF) Homepage - PLACES BUILD TO RENT FUND . Created by Vellum Fund Management and Urban Property Group, Places BTRF was announced late last year to give investors and super funds access to the growing BTR market.
Much of the appeal of living in a built-to-rent residential complex is tied up in the exceptional services and high levels of amenity they provide. These generally far outclass any found in regular apartment blocks, with BTR facilities including on-site managers, and hotel-style concierge along with optimal wifi, co-working and meeting rooms, and such lifestyle luxuries as dog-washing areas and 24-hour maintenance staff should the bathroom spring a leak at midnight. Cinemas and resident’s events are also the norm for a BTR as are resort-style pools and sporting venues beyond a standard gym.
Mirvac, one of the highest profile developers to spearhead BTR, opened Sydney’s first such project LIV Indigo at Olympic Park last August, the first in a string of similar developments planned across the city. Uptake has been positive and follows Mirvac’s earlier research showing BTR appealed across the age groups, from 25 to 40-year-olds to older downsizers. The latter were primarily drawn by amenity and community while the former by optimal facilities like high speed wifi and on-site co-working spaces. Even if rents were pegged higher than the suburb average, renters have shown a willingness to pay extra for the luxury of the BTR lifestyle. In the case of Mirvac’s LIV Indigo, this extends to allowing residents the freedom to hang pictures and paint the walls the colours they wish, the assurance of caps on annual rental increases and the inclusion of the latest whitegoods with the lease.
Melbourne remains the top investment destination for BTR, the CBRE report found. The city’s 23 new developments comprise over 50 per cent of Australia’s current BTR projects due to Melbourne being the most accessible and affordable market for site acquisitions.
Sydney accounts for 25 per cent of projects and Queensland 15 per cent. In Sydney there are 12 projects across the city clustered mostly in the west with one so far in the lower north shore suburb of St Leonards.
Brisbane will see its first two affordable housing projects under construction by mid-2021. Located in the inner-Brisbane suburbs of Newstead and Fortitude Valley, the projects are part of the government’s subsidised BTR scheme and will be developed by Frasers Property Australia and Mirvac.