Australia Major Report - A Taxing Time for Build-to-Rent August 2018
The build-to-rent sector is the second largest property sector in the largest real estate market in the world, it has the highest risk-adjusted returns and attracts capital from the largest funds in the world. Why, then, does it not exist in Australia?
The tax environment in Australia treats this sector differently to the way it is treated in the United States. There are hurdles around land tax, GST and withholding tax. Each issue cuts into the margin and erodes the viability of the sector domestically. Until these hurdles are overcome, the sector will struggle to grow, and see the scale seen elsewhere.
If build-to-rent generated the risk-adjusted returns required by investors in Australia, it would already be a major real estate asset class - capital in large droves would have found it. Yet, this hasn’t happened. Changes are required before the build-to-rent sector begins to flourish in Australia.
These changes could be in the form of changing existing tax rules to even out the playing field. Another form of change could be the investor mindset shifting focus on risk-adjusted returns generated by build-to-rent rather than returns only. Or, build-to-rent in Australia may need to be an altogether new model different to other countries.
The future of a viable build-to-rent model in Australia could depend on a combination of these three changes and more.