10 Sep 2020

The sharp slowdown in private housing development gives Australia an opportunity to expand the small but fast-growing build-to-rent asset class, consultancy Urbis said, as it presented figures showing new apartment project launches halved in the June quarter.

New apartment project launches totalled 23 nationally in the June quarter, down from 60 in the same period a year ago. There were just 55 launches in the first half, putting the country on track this year to record half of last year’s total 199 launches, itself half of the 2015-2018 average of 407 projects, the consultancy’s Q2 Apartment Essentials Report shows.

But the report also shows the pick-up in build-to-rent accommodation. In the year to June, 3305 BTR units were approved nationally and 1895 built, up from the 2645 approved and the 1812 constructed a year earlier. The sector was growing and now was a good time to push it harder to ease the country’s housing shortfall, Urbis director Mark Dawson said.

"When sales conditions are being challenged, it makes sense for the development industry to consider different options."

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“You’ve got a really compelling opportunity to address the structural issues that were there anyway and bridge that supply gap.”

Mirvac has led the nascent sector with projects in Melbourne and Sydney but others are also joining in, such as Queensland developer Homecorp Property Group, Grocon, the family-owned Suleman Group in Melbourne and even US property giant Greystar.

"It’s a small part of the market but it’s accelerating quickly; you’re not far off doubling the pipeline every year."

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Major hurdles remain. The federal government’s refusal to allow BTR investors the same reduced withholding tax rates as allowed for student accommodation and other commercial property investments raises the cost of developing them. State land taxes are also a barrier.

Diversified property group Mirvac last month said it would refocus its build-to-rent strategy to NSW after that state government slashed land tax for the asset class by 50 per cent and introduced planning policies that could potentially fast-track approvals for future projects.

If the sector could be shown to work in Australia, capital would pour in, Mr Dawson said.

“There’s a much bigger pool of investment available to this model than is currently being accessed,” he said. “We need proof of concept and as much certainty as possible to promote this growth. Then you’ll see bigger financial institutions back it.”

BTR could also be used as a form of stimulus, he said.

“Current jobs and future liveability and affordability are on the line, so we do need to find ways to sustain the pipeline,” Mr Dawson said.

“This could be targeted stimulus, like HomeBuilder, but for off-the-plan infill development or supporting build-to-rent to plug the gap in housing supply at risk.”

The above article was originally published in the AFR here

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