The Australian Government officially unveiled its 2023 Federal Budget with crucial property talking points to breakdown and evaluate, which Sameer Chopra, CBRE’s Head of Research, Pacific & ESG, Asia Pacific has undergone.
From the current housing shortage crisis to the mounting pressure on household incomes driven by high inflation and surging interest rates, the latest Budget measures were aimed at delivering relief while mitigating the impact of fiscal policy on the economy’s overall health.
Residential Build to Rent will see a cut in the managed investment scheme tax rate from 30% to 15%, while the depreciation rate increases to 4% from 2.5% per annum for Build to Rent projects.
Looking at short-term housing construction, Sameer believes that there are some immediate obstacles to take note of.
Build to Rent sector granted largest Government support to date
Australia’s Build to Rent sector is gaining serious momentum as a contributing solution to help ease the country’s housing crisis. Andrew Purdon, CBRE’s Regional Director, Living Sectors – Capital Markets, Pacific, takes a closer look at what the Federal Budget means for Build to Rent.
What the Budget means for Build to Rent
“The reduction to 15% MIT withholding tax for eligible Build to Rent projects is a very positive move from the Federal Government and will undoubtedly unlock global institutional investment in the sector. Since the Prime Minister’s initial announcement of the tax change on 28 April, CBRE has received a notable increase in enquiries from investors across APAC, Europe and North America requesting market intelligence and guidance on how they can access the Australian Build to Rent market. However, some of the finer details of the new Build to Rent policies need to be carefully considered but quickly resolved by the Government to provide clarity to investors and enable them to commit to new projects as soon as possible.”
Andrew Purdon, Regional Director, Living Sectors – Capital Markets, Pacific, CBRE
What new migration means for Build to Rent
Andrew Purdon, Regional Director, Living Sectors – Capital Markets, Pacific, CBRE
“The headline of 1.5 million in net migration during the next five years is a huge number of people to accommodate. Data shows us that a majority of new migrants start their lives in Australia in inner cities and approximately 70% are renters. These rental markets are trending below 1% vacancy rate, which is a record low in Australia and some of the tightest vacancy rates in the world. The new apartment supply outlook is severely impacted by construction cost increases since Covid, plus general lack of capacity in the marketplace due to recent insolvencies and labour shortages. We can see a major problem with new supply across all state capitals at the same time as net overseas migration is increased to a 30-year high.”
Expert outlook and recommendations
Andrew Purdon believes that the Government should continue to liaise with the investment community and the construction industry to identify solutions that accelerate new apartment supply as a matter of urgency.
“The creation of new rental accommodation should be considered as critical infrastructure and essential to the future success of Australia. Build to Rent is not a ‘silver bullet’ for housing supply as the scale of the shortage is so large. However, it is a critical part of the solution alongside increased volumes of build-to-sell and delivery of affordable housing. We need more of all housing tenures to rebalance supply and demand and a bespoke policy approach which recognises the specific housing typology required in each part of our cities.”
Andrew Purdon, Regional Director, Living Sectors – Capital Markets in Pacific, CBRE
Development and infrastructure wins
The Build to Rent tax relief is a very smart idea according to Justin Woodcock, who leads CBRE’s Structured Transaction and Development Advisory group nationally.
“[The Build to Rent tax relief] will supercharge that sector for the benefit of lowering rents and providing a pathway for further investment into other asset classes by foreign REITs. That’s exciting. I don’t think people fully appreciate what they could do with that relatively new market. As in the US, the multifamily housing market is enormous, and all the conditions are ripe here in Australia for it to be a very significant market. It’s still at a very embryonic stage here, albeit very exciting. The opportunity and the risk is the significant increase in migration. That will supercharge the economy, tax revenues and obviously demand for residential.”
Justin Woodcock who leads CBRE’s Structured Transaction and Development Advisory group nationally
Other areas of the Budget that Justin highlights as positives are the strong investment in defence – including the AUKUS program as well as the $2bn hydrogen alternative energy investments.
On the topic of new legislative changes to encourage residential development, the 2023 Budget brought with it tax breaks to further bolster the viability of Build to Rent projects.
This includes the increase of depreciation rate from 2.5% to 4.0% per year for projects that started after 9 May this year.
Expert outlook and recommendations
Justin believes that a wholesale review of the planning statutory framework should be considered to realise the true potential of Build to Rent in Australia and the knock-on benefits for long terms renters.
“Several states, particularly NSW, have an onerous planning approval process which is very time consuming. So, the barriers to entry and cost to the investor are significant. The other thing they could consider would be instruments to fast-track development approval that fit within certain criteria. They’ve done it in the past in NSW for seniors living and social housing and to some extent with Exempt and Complying Development. It was effective during the accelerated Nation-Building Program. I think it would be a somewhat progressive suggestion for governments to consider streamlining planning pathways for institutional grade Build to Rent projects.”
Justin Woodcock who leads CBRE’s Structured Transaction and Development Advisory group nationally
