Article | Adaptive Spaces

Offshore investors and tax reforms boost Australia’s Build to Rent sector

February 15, 2021

By Andrew McCasker

Offshore investors and tax reforms boost Australia’s Build to Rent sector

Australia’s Build-to-Rent (BTR) pipeline has expanded by 68% over the past year, with 40 projects and the total number of units approaching 15,000 – a new high for the asset class. The strong pick-up in the BTR pipeline follows cuts to land tax and changes to planning and tax policies for the nascent sector, as well as continued interest from offshore investors.

Using our new Build-to-Rent Development Pipeline report, a half-yearly profile of supply and development projects across Australia, this article will unpack the latest highlights and provide a current state of play for the sector.

As the pipeline continues to expand, the aggregate size of the market is currently estimated to exceed $ 10 billion, with an additional $ 3-5 billion in projects currently under consideration or at various stages of due diligence. This follows a 28% increase in new projects in the second half of last year relative to the first six months of 2020.

Of the 10 projects announced in the past seven months (totalling over 3,300 new units), six were secured by sponsors who already had one or more investments in BTR in Australia indicating increasing levels of appetite.

At present, 11 groups are currently developing more than one project and have committed significant resources to the sector and offshore institutional funding accounts for circa 57% of the total pipeline. This global investment in Australia’s BTR sector has been driven by the asset class’s stable cash flows in a low yield environment.

Melbourne continues to lead the way with its development pipeline representing over 50% of the national market – with its milestone first project hitting the market in 2021 – while Sydney accounts for approximately 25%. Activity in Queensland is gaining momentum on the back of private sector investment, as well as State Government incentives; namely through the BTR Pilot Project, which has already facilitated two projects.

Victoria and Queensland are generally supported by greater availability of suitable development sites and lower barriers to entry, in comparison to Sydney where site values remain comparatively elevated.

On the lending front, the ability to secure favourable debt financing terms has remained a critical enabler for BTR projects in Australia. In this regard, it is encouraging to see new dedicated products tailored to this market, with larger allocations of capital being made by both traditional lenders, the big four Australian banks, as well as non-bank lenders such as insurance groups, private equity and private credit funds.

The level of enthusiasm in Australia is not as high as we are seeing from foreign investors, but there are now more conversations happening with local institutions and superannuation funds. We expect funding appetite to increase as the asset class, and knowledge of the industry, evolves and matures in Australia.

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