As Australia prepares for the next economic wave, migration and population growth will begin resuming and this would indicate a requirement of 300,000 rental residences by 2029 in Australia. The government continues to rely on the private sector to help fund housing needs. In May 2022, the Western Australian (WA) government announced a 50% reduction in land tax as part of its 2022/23 State budget for “build-to-rent” schemes in order to ease rental shortages, which are already popular in the USA, UK and Europe.
Different from the traditional build-to-sell approach which dominates the Australian property landscape, build-to-rent (aka“multi-family housing”) helps provide a steady income for investors and security of tenure, and better conditions for renters in a tight rental market. Population growth supporting tenant demand, higher rents increasing investor returns, and a significant amount of capital targeting Australian housing are all tailwinds for build-to-rent over the next decade.
What is build-to-rent?
Build-to-rent projects are typically large-scale residential developments where all the properties are owned and managed by a single entity to be rented out over mid to long-term periods. The project is based on maximising residents’ enjoyment and liveability, as the developer retains ownership of all the apartments and offers them longer-term rent.
In WA, with the 50% reduction in land taxes for next year’s state budgets ( and 100% duty transfer rebate for eligible off-the-plan properties below $500,000), developers, both local and foreign, will be taking advantage of this incentive
Where can you find some examples in WA?
In WA, we have several projects including:
Sentinnel at Subiaco
Element 27 at Subiaco
Department of Housing at High Gate
What are the Benefits/ Disadvantages for Tenants?
For tenants, the advantages include:
- Longer-term leases (most rentals are looking for leases for 3 years)
- Flexible leases where typically include no rental bond, allowance for pets and the ability to redecorate the dwelling without prior approvals
- Amenities: the rentals generally are for higher-end clientele and so there are more amenities available from gyms, spas, swimming pools, tennis courts, playgrounds, security guards etc
- Community living: as most renters would have long-term leases, they tend to know each other as they frequent the same amenities provided and tend to build longer-term relationships
- Swapping units within the same apartment complex owned by one owner based on growing family needs
Disadvantages to tenants include:
- It would be harder to break lease and move out mid-way from the development if there is a change of circumstance in life
- Higher premium paid for amenities which are not used
- As this is a newer concept in Australia, there is a higher risk in trusting the developer to fulfil their promise
What are the Benefits and Disadvantages for Investors/ Developers?
For developers, advantages include:
- A steady stream of income
- Security of a longer tenure
- Potential for better returns due to higher rental prices
- Minimise costs of maintenance with contracted tradespersons and suppliers
Disadvantages for developers include:
- Risk of investing in an emerging concept
- Possible higher vacancy
- Rent increase mid tenancy is usually not provided for
In summary, although a build-to-rent home is an appealing investment for developers and is targeted to ease the housing shortage, the commitment for investors is long term and it best benefits those who have the time to wait patiently for the return to materialise.
