In June 2024, the Australian government introduced two Bills into Parliament to give effect to tax incentives to spur on development in the Build to Rent (BTR) sector and to address the housing affordability crisis in Australia.
The incentives include reductions in income tax, stamp duty, managed investment trust withholding and capital gains tax and land tax imposts for BTR investors. The outcome of these tax breaks will bring investor returns on BTR projects in line with traditional commercial property such as office, retail and industrial.
What is Build to Rent?
BTR is a relatively new type of residential housing in Australia.
Residential Strata Title is a well known property type for owner occupiers, investors and tenants. While most residential apartments in Australia are built by large developers as strata title properties, with individual apartments sold off one by one, BTR are long term investments for the owners and are designed specifically for renters.
The predicted growth in strata title properties is still strong; the growth in BTR will bolster access to more affordable housing.
A BTR property is not registered as strata title and has no owners corporation, body corporate, strata company and no individual apartment, unit or lot owners.
BTR is a residential property where all apartments are retained by a single owner, developer, managed investment trust or another entity after the development is complete. The apartments in a BTR building cannot be owned or sold individually and are leased to tenants under individual tenancy agreements. Any sale of the property would include all apartments in the building.
The table below highlights the different attributes of BTR vs Residential Strata:
| ATTRIBUTES | BUILD TO RENT | RESIDENTIAL STRATA |
| Ownership | Single Owner or Entity | Owners Corporation* with Individual Owners |
| Building has Common Property and Common Areas | Owner responsible for all common property and common areas Including liability Tenant responsible for their personal property and liability | Owners Corporation responsible for common property and common areas including liability Individual Owners responsible for liability and owner‘s personal property within the apartment / unit or lot Tenant responsible for personal property within the apartment. |
| Maintaining the property | Single Owner or Entity | Owners Corporation including all Individual Owners |
| Insuring the property | Single Owner or Entity | Owners Corporation |
| Legal liability (unlimited) | Single Owner or Entity | Owners Corporation including all Individual Owners |
| Sale of property | All apartments | IndIvidual apartments |
| Local council rates | Paid for by owner | Paid for by each Individual Owner |
* Owners Corporation, Body Corporate, Unit Plan, Strata Company – name of entity varies by state and territory
Success of Build to Rent in other countries
BTR is a proven model in overseas markets such as the UK and the USA. It has been successful in encouraging BTR development and partly addressing the housing and affordability issues in these countries – and there is great hope that it will achieve the same in Australia.
UK
In the UK, the BTR sector expanded rapidly after a 2012 government report looked at how to encourage a greater supply of homes for rent. Today there are around 115,000 BTR units across the UK. BTR apartments were being delivered faster than units for sale, partly because high interest rates were making it hard for developers to sell individual apartments.
BTR properties tend to offer leases of up to three years as opposed to the 12 month contracts common in the private landlord market. Typically, amenities in BTR are kept to a minimum to control the costs and rental rates.
Pension funds or insurance companies often own BTR complexes in the UK and see the benefits of steady, long term revenue from the investment rather than the sale.
USA
BTR developments in the USA have tended to focus on whole suburbs with stand alone homes or townhouses to rent in line with the declining rate of home ownership.
The target group are millennials burdened with large college loans who are unable to purchase. High fixed interest rates in the US have made renting more appealing to avoid locking into financially burdensome loans.
Why was the BTR concept introduced in Australia?
In the past, Australians had a choice of one of two options for living arrangements, rental agreements or a mortgage, both of which have become more expensive in recent times.
BTR combines the flexibility of longer term renting, with secure and affordable leases, some shared amenities and a genuine community living like the Mirvac LIV developments in Sydney Olympic Park, and the Queen Victoria Market and North Wharf in Melbourne
Investors are spending billions on the BTR sector, with more than 8,000 dedicated BTR apartments under construction in Australia in 2023, and another 13,000 approved for development.1
Lobby groups are continuing to encourage Federal and State Government investment and incentives to support growth in this area. Property companies like Mirvac, Lendlease, Colliers, Greystar, Sentinel and Aware Super are leading the charge with new BTR developments in Australia. They invest in large scale housing developments and build well connected communities in locations close to transport and employment hubs, providing enhanced opportunities for individuals and families alike to thrive.
With rising cost of living pressures in Australia, the Australian dream of owning property is unfortunately becoming increasingly difficult to reach. While BTR may not be a complete solution to fixing housing affordability, it can allow Australians to live in locations they would not otherwise be able to afford, while addressing the growing imbalance in the rental market.
How can Whitbread help your valuable Build to Rent investment?
The insurance needs of BTR properties are unique. The Whitbread team’s depth of knowledge, combined with property and strata insurance experience and industry leverage, gives us a unique insight into the growing build to rent market. You can visit our Build to Rent page for more information or if you need assistance with any questions contact Whitbread today.
T: 1300 424 627
E: info@whitbread.com.au
Important notice
This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
Information is current as at the date the article is written as specified within it but is subject to change. Whitbread Insurance Brokers make no representation as to the accuracy or completeness of the information. Various third parties have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of Whitbread Insurance Broker.
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228, License Number 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.
References
https://www.pwc.com.au/tax/tax-alerts/build-to-rent-in-australia-an-evolving-landscape.html
