With an impending shift in balance from home ownership to renting in Australia, the build-to-rent sector provides an affordable, quality, and long-term housing solution for the increasing population that has been priced out of the owner-occupier market. Attracting institutional investors and developers with government incentives, build-to-rent not only offers rental stability to tenants but also provides a secure, long-term, low-risk income stream for the business that builds, owns and manages the property.
Already well established in the US and UK, the build-to-rent sector is experiencing rapid growth in developed countries around the world. With people now renting for longer, sometimes even their entire lives, this has been an untapped market for investors and developers in Australia… until now.
The build-to-rent landscape in Australia
Earlier this year, Mirvac – one of Australia’s largest high-density residential developers – initiated the Australian Build to Rent Club (ABTRC) in affiliation with the Clean Energy Finance Corporation (CEFC). Identifying the long-term investment potential, Mirvac will act as the development, investment and property manager. The 258 apartment block forms part of Indigo Pavilions at Sydney Olympic Park in New South Wales and will incorporate onsite leasing and management along with a range of sophisticated resident amenities and sustainability inclusions. The investment from CEFC will ensure tenants have access to the latest clean energy technology, such as LED lighting, solar PV, along with energy-efficient appliances and water saving features. But how will they manage it? Unless they are tapping into management companies from the US and UK that have experience operating in this model, they will need to re-assess who in Australia is capable of managing this asset.
Another early adopter of the Build to Rent model is Salta Properties, who are pioneering this market in Victoria. With a $330 million 260 apartment tower development underway at 699 La Trobe Street in Docklands, Salta Properties will retain ownership of the units, offering them as long-term multi-family leases. The development will include a hotel, occupying the first 10 floors of the tower, which will be managed by the InterContinental Hotel Group. With a second Build to Rent residential project planned for Victoria Gardens in Richmond, Salta Properties will incorporate a commercial space, to enhance the long-term yields in this market.
Build-to-rent benefits for tenants
With governments in New South Wales and Victoria encouraging developers to invest in build-to-rent apartment blocks, this will open up a range of enhanced living opportunities for Australians. Offering long-term security, families who rent can embrace their future as an integral part of their local community – from schooling and sport to career and social activities. For younger generations who are priced out of the housing market, the rent-to-build sector provides a holistic solution to better liveability. Seeking a home in a central location, with high quality amenities and access to urban convenience is a priority for many millennials.
Benefits for Developers
The residential rental sector is currently undergoing big change. Reduced tax incentives, forecasted lower returns and restrictions on lending mean that individual investors are finding the market less appealing. Add to the mix a cooling residential property market, a continued demand for rental properties and potential Government incentives for build-to-rent developments, and this is an attractive long-term investment option.
The build-to-rent model invites developers to join forces with institutional investors, such as Australian super funds and offshore pension funds, to build, own and manage properties in the long-term. Already established in a number of overseas markets, global investors are very comfortable with this asset class and are reportedly seeking it in Australia.
Low risk, long-term and secure, the build-to-rent sector provides developers with a consistent revenue stream, while connecting them with a new customer base of longstanding tenants. With the prediction that build-to-rent projects will soon lead and accelerate the growth of rental properties, this is certainly a space to not only watch carefully but be actively involved in.
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