The Coalition victory at the Federal election has leaders in the property industry calling yet again for changes to the tax regulations surrounding Australia’s nascent Build-to-Rent (BTR) sector.
BTR was poised to be a major beneficiary if Labor came to power, with one of the opposition’s key, pre-election commitments being to allow offshore investors to hold BTR developments under Australia’s Managed Investment trust (MIT) structure.
Instead of paying a withholding tax rate of 30% on passive investments, the tax requirement for offshore BTR investors using an MIT structure would have halved to just 15%.
The Coalition’s current legislation, which prohibits holding all residential investments - including BTR assets - in an MIT structure, acts as a significant deterrent for overseas investors. A reduced tax rate, combined with declining site values, would provide a significant boost for the sector, enhancing the viability of new development projects.
CBRE established a dedicated BTR Committee last year to advise on new and proposed development projects. It has worked alongside developers, investors and financiers in originating and delivering such projects.
The committee is currently advising on more than $1bn in projects comprising more than 2,000 apartments on behalf of large listed REITs, private developers, financiers and public sector clients.
The current downturn in the residential cycle has increased the availability of suitable land for BTR projects and the volume of market enquiries and investor presentations that CBRE has been involved in has more than tripled year-on-year.
However, tax changes are critical to drive increased interest from major global institutional investors who hold significant BTR-related exposure in other jurisdictions, including the US, where the sector is known as multi-family.
A recent adjustment in Australian land values, alongside broader changes in consumer preferences, has provided a greater opportunity for BTR projects and a change in the MIT legislation would further increase the viability of new developments for offshore investors and provide an exit strategy for some developers who are actively looking to offload parcels of residential land that they can no longer afford to develop.
Other developers are looking for buyers of yet to be completed developments that could be converted to BTR projects.
This is playing out across Sydney and Melbourne in particular, but also in Brisbane and Perth. Confidence is also growing around viability and demand in non-prime locations, as the spread between yields and funding costs has widened, making markets such as western Sydney and South Sydney more desirable.
However, tax changes will be a critical factor if we want seasoned offshore developers to help drive the expansion of BTR in Australia.
For more information on BTR, please visit https://www.cbre.com.au/real-estate-services/real-estate-industries/build-to-rent
Article can be found on SMH here