Property consultancy Savills Australia has found that the Australian Build to Rent sector is experiencing a period of rapid growth, through its latest research report – Australian Multifamily Market & Trends.
Ongoing investment into the sector could help the Australian Government deliver its ambitious target of 1.2 million new homes by 2029, with residential vacancy rates remaining tight across major cities, according to Savills’ report.
This has been driven by narrowing purchasing affordability combined with lower off-plan sales to investors. Amidst these conditions, Build to Rent remains a resilient asset class, says Savills, with investment volumes climbing a staggering 361% in 2023 compared to the previous five-year average.
While yet to reach the level of maturity seen in the US, changes to tax policy could play a significant role in accelerating the growth of Australian Build to Rent, as an increasing number of developers consider alternative options for residential development beyond traditional core locations of Sydney, Melbourne and Brisbane.
Australian Build to Rent is tipped to play an increasingly important role in meeting housing demand, and Savills forecasts that economic conditions and ongoing low vacancy will solidify the high growth potential of the sector.
“Unlocking the significant pipeline of Build to Rent development projects should be a key focus to help reach the ambitious housing delivery target of building 1.2 million new well-located homes over the next five years. Policy changes at a federal level are fundamental to ensuring that the true growth potential of the Build to Rent sector is fully realised.”
Conal Newland, Head of Operational Capital Markets, Savills Australia
According to Savills’ report, Australia’s current housing crisis is well documented, with demand significantly outstripping supply and vacancy falling below 1% across all major cities.
The Build to Rent sector has capitalised on sustained population growth, the supply and demand imbalance, and high levels of rental growth; all of which can deliver stable returns despite an uncertain economic backdrop. This growth has led to inflation-matching returns, while yields have proven resilient, comparative to other Australian core asset classes.
Investors have also navigated a challenging year of rising debt costs and material and labour-cost inflation, which have contributed to the limitation of development opportunities. Alongside this, operational assets have witnessed pricing pressures.
As it stands, 13,265 Build to Rent units are currently underway in Australia – equivalent to 1% of the Government’s 1.2 million target – all of which are scheduled for completion within the next three years. A further pipeline of over 32,000 Build to Rent apartments could be unlocked following planning approvals and delivered by the end of 2028.
However, Savills’ analysis of the pipeline reveals that only 42% of all announced Build to Rent pipeline units are funded and have a likeliness of being delivered by the end of 2028. The remaining 19,000 units are either not funded, or the feasibility of the previously capitalised development is no longer viable.
Savills expects that a change in the Australian tax landscape will further spur investment, with the reduction in Managed Investment Trust (MIT) withholding tax to 15% for foreign investors in Build to Rent – expected to take effect from 1 July 2024.
However, Build to Rent projects are still currently subject to onerous tax regimes, such as the inability to claim back Goods and Services Tax (GST) on Build to Rent construction and land costs, which are available for those delivering private for-sale schemes.
