Article | Intelligent Investment
Why offshore capital is eyeing Australian build to rent
As the nation's property sector heads towards fresh opportunities and challenges in 2025, the experts provide an update on the progress of build to rent.
January 9, 2025
Housing is an issue that’s set to impact generations of Australians in the future. And some of the country’s most prominent property leaders know what needs to be done to address it.
“To solve this housing crisis, we are really going to have to put intense capital in for long periods of time,” Charter Hall’s Carmel Hourigan tells CBRE.
“This is not going to be a short fix. We need stability from both Federal and State in terms of the way the legislation and the taxes are working so people can understand them. Naturally, we are turning our attention to things like build to rent in Australia, which is very much in its infancy. It’s not the only solution, but we do think it's part of the solution to the problem.”
In late 2024, the Australian Governments passed new laws offering development tax incentives to providers of build to rent. These incentives give owners and investors in eligible developments access to:
These incentives also come with conditions to help alleviate the country’s growing housing crisis. These include operators needing to offer longer 5-year leases, non-eviction without fault, and at least 10% of dwellings must be offered as affordable for lower income Australians.
As the nation's property sector moves towards the fresh opportunities and challenges of 2025, an expert update on the progress of build to rent (BTR) is crucial.
Explaining what’s challenging the sector locally as well as why there’s sustained interest from offshore capital is Richard Carmont, chairman of Arklife and a board member of ADCO, alongside Andrew Purdon, Pacific Head of CBRE’s Living Sectors Capital Markets business. These insights come from CBRE’s recent Talking Property podcast episode.
He recalls travelling to Hong Kong and Singapore to talk to the major investment houses when ADCO first stepped into the build to rent arena with Arklife’s Scott Ponton but getting “interest without commitment”.
With a few sites already in mind, ADCO's internal pool of capital was instead harnessed to get their first few assets established. The idea was to re-engage with the institutional investor market once they had proven their model.
"We did that, and it ended up driving the development of both Robertson Lane and 17 Cordelia Street, which we recently sold to Hines and Ontario Teachers’ Pension Plan,” says Richard.
It’s arguably this skin in the game and a concise understanding of the diverse factors that has allowed Arklife and ADCO to get ahead of the curve in the BTR market.
“The ability to control your developments both financially and from a delivery point of view is a distinct advantage. Particularly now where delivery is a challenge,” he says.
“Our first project finished in 2021. This was good as we had a different cost base. The building environment was a lot easier than it is now.
“And with a larger project like 17 Cordelia Street, the ability to have your building arm managing and controlling that, particularly in a difficult building environment, was one of the reasons that we had the confidence to start the project. That's been a positive decision in the end.”
Advising Arklife on the successful Hines and Ontario Teachers’ Pension Plan deal was CBRE’s Andrew Purdon, an appointment which similarly echoes the importance of experience in the Australian BTR space.
“When we took on the brief we made a commitment to Richard, Scott and the ADCO shareholders that we would engage globally with this opportunity,” he says.
The reasoning for this was because these two assets in Brisbane are exceptionally rare in the insofar as they are the first purpose designed and developed BTR assets to sell in Australia. “Arklife leased Robertson Lane during the pandemic, proved an operating model, built a brand, and used the learning as a stepping-stone into doing the next building at Cordelia Street which is much larger at 265 apartments.
“What we were able to showcase to investors was that this group had been there and done it and created the real estate. We weren't selling a pitch deck or beautiful CGIs. We were selling actual real estate. This in turn attracted interest from all over the world along with a selection of domestic investors and superfunds.
“It was very well received despite the challenges in the capital markets.”
The reason?
“Quite a few of the overseas investors have more experience in the performance of these style of assets,” Andrew explains.
“When we talked about occupancy levels, rents, rent growth, they're able to draw upon more experience from other markets. There are some very well-established domestic investors who have exposure to BTR in Australia. But when we're presenting these types of opportunities, we generally find that the overseas investors come to the top of the pack when it comes to bid pricing.”
Richard agrees, highlighting that overseas investors have been investing in BTR for the last 20 to 30 years.
“From my perspective, I think the newness of the product in Australia seemed to create some nervousness in jumping in from the Australian institutions.
“Hopefully as the market evolves in Australia, the onshore institutions get more comfortable with it. They certainly can be competitive as they have a more favourable tax environment.”
Based off what they've seen from their Brisbane assets, Richard says that the market fundamentals are “brilliant” from an investment point of view.
"There’s growing rental demand, population growth and low vacancies in the Brisbane market. It's the reason that we got into it ourselves.
“It takes three to four years to deliver a reasonable sized BTR asset from concept to completion. This means that the supply is not going to catch up in a short space of time.
“Overseas investors look at these demand supply dynamics in Australia and it's very compelling. Add to that the fact that we've got an advanced country with a good rule of law and we have a lot of factors that make Australia an attractive place to invest."
What potential investors should also know is the demographics currently making up Australia’s BTR tenants. According to Richard, it has evolved since the pandemic days.
Initially, it was only Queensland locals as interstate and overseas travellers were either limited or non-existent. Nowadays, there’s everything from students to families to young professionals and international tenants.
“People moving over for jobs or moving to Brisbane. People who are not looking to buy, but they just want to rent an apartment as it's an easy step for them, particularly the furnished apartments.
“Part of our ethos is to develop a community in our buildings, and I think that has really worked in terms of becoming a real community.”
“There's been a lot of commentary around whether we're at the peak of interest rates in Australia - and we all certainly hope we are,” says Andrew.
“When we're in that uncertain period of whether interest rates will drop or not, investors tend to sit on the sidelines and wait and see.”
Two things happen during these cyclical issues:
“On the structural side, the government really needs to land on a clear policy position on tax for the sector, which is specifically related to overseas investors, and needs to find a way to really lever in and incentivise the delivery of housing,” adds Andrew.
“At the moment the policy settings aren’t clear enough for investors, and this forces people onto the sidelines.”
Richard additionally highlights the current delivery risk in construction prices.
“We've had cost escalation in construction over the last three years of circa 40-45%.
“A bit more stability in the costs and the risks of delivery is critical. Until we solve those problems, it might continue to be a little bit slow in terms of new projects.”
“To solve this housing crisis, we are really going to have to put intense capital in for long periods of time,” Charter Hall’s Carmel Hourigan tells CBRE.
“This is not going to be a short fix. We need stability from both Federal and State in terms of the way the legislation and the taxes are working so people can understand them. Naturally, we are turning our attention to things like build to rent in Australia, which is very much in its infancy. It’s not the only solution, but we do think it's part of the solution to the problem.”
In late 2024, the Australian Governments passed new laws offering development tax incentives to providers of build to rent. These incentives give owners and investors in eligible developments access to:
- An accelerated deduction of 4% for capital works relating to build to rent developments
- A concessional final withholding tax rate of 15% on eligible fund payments
These incentives also come with conditions to help alleviate the country’s growing housing crisis. These include operators needing to offer longer 5-year leases, non-eviction without fault, and at least 10% of dwellings must be offered as affordable for lower income Australians.
As the nation's property sector moves towards the fresh opportunities and challenges of 2025, an expert update on the progress of build to rent (BTR) is crucial.
Explaining what’s challenging the sector locally as well as why there’s sustained interest from offshore capital is Richard Carmont, chairman of Arklife and a board member of ADCO, alongside Andrew Purdon, Pacific Head of CBRE’s Living Sectors Capital Markets business. These insights come from CBRE’s recent Talking Property podcast episode.
Leveraging the potential of experience
ADCO recently sold two Brisbane projects to the $256 billion Ontario Teachers’ Pension Plan and the US-based Hines - the world’s second largest BTR player. Richard attributes this successful transaction of Australian BTR down to one factor: experience.He recalls travelling to Hong Kong and Singapore to talk to the major investment houses when ADCO first stepped into the build to rent arena with Arklife’s Scott Ponton but getting “interest without commitment”.
With a few sites already in mind, ADCO's internal pool of capital was instead harnessed to get their first few assets established. The idea was to re-engage with the institutional investor market once they had proven their model.
"We did that, and it ended up driving the development of both Robertson Lane and 17 Cordelia Street, which we recently sold to Hines and Ontario Teachers’ Pension Plan,” says Richard.
It’s arguably this skin in the game and a concise understanding of the diverse factors that has allowed Arklife and ADCO to get ahead of the curve in the BTR market.
“The ability to control your developments both financially and from a delivery point of view is a distinct advantage. Particularly now where delivery is a challenge,” he says.
“Our first project finished in 2021. This was good as we had a different cost base. The building environment was a lot easier than it is now.
“And with a larger project like 17 Cordelia Street, the ability to have your building arm managing and controlling that, particularly in a difficult building environment, was one of the reasons that we had the confidence to start the project. That's been a positive decision in the end.”
Advising Arklife on the successful Hines and Ontario Teachers’ Pension Plan deal was CBRE’s Andrew Purdon, an appointment which similarly echoes the importance of experience in the Australian BTR space.
“When we took on the brief we made a commitment to Richard, Scott and the ADCO shareholders that we would engage globally with this opportunity,” he says.
The reasoning for this was because these two assets in Brisbane are exceptionally rare in the insofar as they are the first purpose designed and developed BTR assets to sell in Australia. “Arklife leased Robertson Lane during the pandemic, proved an operating model, built a brand, and used the learning as a stepping-stone into doing the next building at Cordelia Street which is much larger at 265 apartments.
“What we were able to showcase to investors was that this group had been there and done it and created the real estate. We weren't selling a pitch deck or beautiful CGIs. We were selling actual real estate. This in turn attracted interest from all over the world along with a selection of domestic investors and superfunds.
“It was very well received despite the challenges in the capital markets.”
Offshore capital vs domestic
The notion of experience doesn’t just affect the developer side. While there was domestic interest in Arklife’s projects, their pricing was more conservative when compared to that of the offshore investors.The reason?
“Quite a few of the overseas investors have more experience in the performance of these style of assets,” Andrew explains.
“When we talked about occupancy levels, rents, rent growth, they're able to draw upon more experience from other markets. There are some very well-established domestic investors who have exposure to BTR in Australia. But when we're presenting these types of opportunities, we generally find that the overseas investors come to the top of the pack when it comes to bid pricing.”
Richard agrees, highlighting that overseas investors have been investing in BTR for the last 20 to 30 years.
“From my perspective, I think the newness of the product in Australia seemed to create some nervousness in jumping in from the Australian institutions.
“Hopefully as the market evolves in Australia, the onshore institutions get more comfortable with it. They certainly can be competitive as they have a more favourable tax environment.”
The strength of Australian BTR
If there’s anything that Richard and his team are certain of, it’s the performance potential of Australian BTR.Based off what they've seen from their Brisbane assets, Richard says that the market fundamentals are “brilliant” from an investment point of view.
"There’s growing rental demand, population growth and low vacancies in the Brisbane market. It's the reason that we got into it ourselves.
“It takes three to four years to deliver a reasonable sized BTR asset from concept to completion. This means that the supply is not going to catch up in a short space of time.
“Overseas investors look at these demand supply dynamics in Australia and it's very compelling. Add to that the fact that we've got an advanced country with a good rule of law and we have a lot of factors that make Australia an attractive place to invest."
What potential investors should also know is the demographics currently making up Australia’s BTR tenants. According to Richard, it has evolved since the pandemic days.
Initially, it was only Queensland locals as interstate and overseas travellers were either limited or non-existent. Nowadays, there’s everything from students to families to young professionals and international tenants.
“People moving over for jobs or moving to Brisbane. People who are not looking to buy, but they just want to rent an apartment as it's an easy step for them, particularly the furnished apartments.
“Part of our ethos is to develop a community in our buildings, and I think that has really worked in terms of becoming a real community.”
Challenges of Australian BTR
While there are proven strengths in the Australian BTR sector, the challenges on the horizon also need to be considered, especially in today’s economic environment.“There's been a lot of commentary around whether we're at the peak of interest rates in Australia - and we all certainly hope we are,” says Andrew.
“When we're in that uncertain period of whether interest rates will drop or not, investors tend to sit on the sidelines and wait and see.”
Two things happen during these cyclical issues:
- In a challenging down cycle, many investors need to deal with revaluations of existing assets. These investors can be distracted by these issues when they've got exposure to different types of real estate assets.
- Development tends to fall down the priority list for many investors. Whilst not unique to BTR, this environment tends to see investors gravitate towards income producing stock rather than building new stock.
“On the structural side, the government really needs to land on a clear policy position on tax for the sector, which is specifically related to overseas investors, and needs to find a way to really lever in and incentivise the delivery of housing,” adds Andrew.
“At the moment the policy settings aren’t clear enough for investors, and this forces people onto the sidelines.”
Richard additionally highlights the current delivery risk in construction prices.
“We've had cost escalation in construction over the last three years of circa 40-45%.
“A bit more stability in the costs and the risks of delivery is critical. Until we solve those problems, it might continue to be a little bit slow in terms of new projects.”
