In the 2023-24 Federal Budget, two aspects of tax policy have been earmarked for alteration, which have been shown to affect the cashflow of Build to Rent developments, the report from Oxford Economics Australia has found.
With their effect likely impacting the next round of projects, the report indicates the majority of tracked projects are being planned by Australian developers or financed by Australian-based investors.
However, several foreign developers and financiers have either gradually begun entering the Australian market or have been considering it for some time.
With the Queensland and Western Australian governments having announced 50% discounts on applicable land tax that came into effect on 1 July 2023, many state governments now have some form of land tax concession in place for Build to Rent developments.
Beyond tax policy, state governments are providing support to the Build to Rent sector by looking to partner with private developers to deliver additional supply of social and affordable units.
Within the partnerships include subsidies for below-market-rent units, land releases for redevelopment, and direct PPP projects.
The Queensland Government has contributed the most to this area with the introduction of the Housing Investment Fund, which has released land and committed to subsidising affordable rental units in Build to Rent developments, the Oxford Economics Australia report states.
In planning, the NSW Government is opening its zoning policies in a move to further boost the sector.
On budget night, the Federal Government confirmed they were “reducing the withholding tax rate for eligible fund payments from managed investment trust attributed to newly constructed Build to Rent developments from 30-15%.”
The reduced withholding tax rate will apply from 1 July 2024, with further consultation on implementation details to be undertaken, including the length of time developments must be held under single ownership and the proportion of affordable tenancies.
The government also confirmed they were “increasing the capital works deduction (depreciation) rate from 2.5% to 4% per year.”
This policy measure applies to developments that start construction after budget night, have a minimum of 50 dwellings, offer leases with a minimum term of three years, and are held under single ownership for a period of at least ten years.
