Of all the work and lifestyle factors accelerated or magnified by COVID-19, build-to-rent (BTR) is right at the top. Along with working from home, the idea of shunning the shackles of home ownership for high-quality long-term rental accommodation with a string of benefits is fast gaining traction at every level.
Major steps have been made in the last month alone, starting with the NSW government’s decision to grant a 50 per cent discount on land tax to developers who invest in BTR schemes for the next 20 years. Foreign investor surcharges, largely blamed for stifling BTR in Australia, have also been scrapped in NSW. Previously, overseas-based BTR investors using Managed Investment Trusts (MITs) faced taxes of been 30 per cent instead of the 15 per cent for local superannuation funds and eligible foreign overseas investors in other asset classes.
BTR (in contrast to build to sell) is a model of creating quality, amenity-packed residential developments solely as rental accommodation. The idea is to deliver a viable, long term or even lifelong alternative to home ownership via high-comfort, high-convenience rental properties with the added attraction of security: BTR tenants need never fear sudden eviction at the whim of a landlord.
BTR also presents an attractive investment vehicle for the likes of Managed Investment Trusts and superannuation funds. Until now, the unfavourable tax rates recently tackled by the NSW government and general lack of policy framework around BTR have prevented it flourishing in Australia as it has in the United Kingdom and United States.
Top of the asset class
While this has not prevented several BTR developments taking place, the pandemic-driven economic turmoil and impact on housing markets has given the sector an enormous push and paved the way for making quality rental-only accommodation a standard part of our urban fabric sooner rather than later. Adding to the notion is the fact BTR developments are ideal for high-density areas that have access to neighbourhood services, cafes and activities – all of which have become even more highly-valued thanks to the pandemic and lock downs seeing people spend time closer to home.
Just as appealing is BTR’s track record as an asset class. For example in the US (where it is referred to as “multi-family housing”) CBRE reports the sector accounts for almost a quarter of the $US2 trillion worth of institutional property investment, ranking it the second largest investor allocation after office property. It has also proved a resilient asset class, maintaining steady returns through periods of economic turmoil.
In announcing the policy changes around BTR last week, NSW Planning Minister Rob Stokes said the concept provides a more direct route for investment in housing diversity while providing “the certainty needed to build in uncertain times”.
"These proposed changes will help support the state's future housing needs while contributing to NSW's economic recovery from COVID-19 by boosting residential construction and supporting jobs," Mr Stokes said.
The past month also saw other states fast-track plans for BTR. The Queensland government has set the ball rolling on a BTR Pilot Project with the potential to supply over 750 total dwellings of which up to 40 per cent will be affordable rental housing. Further details will be announced in late September.
In Victoria, among recent projects fast-tracked to boost the pandemic-stricken economy is a $250 million development at 31 Station St, Caulfield which includes a build-to-rent scheme as well as affordable housing, a supermarket, retail and office space.
BTR is already well underway in Melbourne, with most of Mirvac’s 1700 to 1900 build-to-rent units under development located in the city. This includes the 490-unit development in the Queen Victoria Market precinct, scheduled for a late 2022 opening.
Aside from creating a new asset class via secure, long-term rental accommodation, BTR developments are characterized by multiple amenities, ranging from the standard high speed wi fi to the unique and downright quirky. As income for a BTR owner or investors comes from rent, not appreciation of the property itself, concerted efforts are made to ensure these developments are as attractive, easy, convenient and enjoyable to live in as possible.
Australia’s first fully fledged BTR project - Smith Collective on the Gold Coast - is no exception. Opened in early 2019, the village is the creation of Grocon and global real estate firm JLL which transformed just over 1250 apartments in the former Gold Coast Commonwealth Games athletes village into a $550 million rental complex. Now Smith Collective offers tenants not only lovely dwellings and landscaped gardens but also community vegetable gardens, multiple gyms, four swimming pools, community events, a sports oval and a Real Life Library for borrowing anything from kitchen appliances to deck chairs.
Many BTR properties are not unlike (pet-friendly) hotels with managers and (of course) high speed internet throughout. Another trailblazing BTR development, the Element 27 building in the Perth suburb of Subiaco, opened last October. Along with 24-hour maintenance and on-site managers residents can use a state-of-the art gym, heated pool and sun deck, relax among native plants on the landscaped rooftop area overlooking the city and park in a gated underground car park.
In Sydney, Mirvac has just completed its first purpose-built build to rent development in NSW – LIV Indigo in Sydney Olympic Park. First tenants are currently moving in and have freedoms unheard of with regular rental properties – they can paint walls, hammer nails, hang pictures and own pets.
Like Element 27, LIV Indigo’s rooftop is given over to a greenery-filled luxurious lounge for residents. A commercial kitchen complements the offering should anyone feel the need to whip up a meal away from the high-end fittings in their apartment. LIV Indigo also offers a media room, conference facilities, a concierge and social club. The lifestyle comes at a premium for the area, rents starting at $535 per week for a one bedroom rising to $615 for a two bedder and around $900 for three bedrooms. Rental increases are capped at 4 per cent a year but rents do not rise automatically, either.
There is no doubt that a new bar has been set in rental dwellings. Most significantly BTR means renting securely for life is now feasible, a realistic alternative to home ownership and an interesting new asset class to watch.