In April, the Australian Government unveiled a series of measures designed to increase the housing supply, resulting in a significant boost to the Build to Rent sector, says Knight Frank.
According to EY, the Build to Rent sector currently represents 0.2% of the total Australian residential sector. Knight Frank expects these measures to increase the attractiveness of the sector in the longer term to around 3% of the total value, equating to a potential worth of A$290bn or the equivalent of 350,000 apartments.
The country is currently facing record-low vacancy rates alongside strong demand for student accommodation by overseas students – and a boost for the build to Rent sector may be the answer to Australia’s housing woes.
What measures were announced?
On 28 April 2023, the Australian Government announced it would provide incentives to increase the supply of housing, by:
- 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 residential property, including Build to Rent projects.
- 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 starts after the Budget and will shorten the period that construction costs of eligible buildings are depreciated from 40 to 25 years.
Build to Rent beyond Australia
Knight Frank reports that the implications of these measures extend beyond Australia. Regulatory reform is a key driver for the growth of rental accommodation in nascent markets across APAC.
The company has already witnessed the positive effects of government support for the Build to Rent sector in China. As these changes effectively address the question of housing affordability in these markets, it is expected that other countries in the region will also look to support the rental housing sector.
Investor moves in the Build to Rent sector
Like most sectors, investors who are first movers will benefit. The market is very dynamic – a change in government policy can alter the viability of the sector. Investors that are well-prepared and educated in the sector will be able to act quickly when the market moves, though partnering with local experts in each market is key.
Cadillac Fairview, Hines, PGGM, Greystar and Ivanhoe Cambridge are among a slew of high-quality institutions already investing in Build to Rent assets in Australia – a clear barometer of what’s to come as tenant demand continues to grow in the country.
