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New investment in build to rent to eclipse offices, logistics by 2030




June 5, 2023

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New Oxford Economics Australia research finds that new BTR project commencements will surge to $10 billion in calendar year 2030

Build to rent development will become the biggest asset class in new property development by 2030, eclipsing offices, student accommodation and even logistics as institutional investors – drawn by easing investment rules – tap opportunities in the country’s chronic housing shortage.


New Oxford Economics Australia research finds that new BTR project commencements will surge to $10 billion in calendar year 2030, up from about $2 billion last year and well above the end-decade figures of near-$6 billion for office builds and $5 billion for logistics commencements.


“We expect BTR will lead the way in terms of new asset investment over the remainder of this decade, despite the sector’s total asset pool being dwarfed by that of the larger asset classes,” the report, authored by economist Michael Dyer, says.
“Other property asset classes are facing less rosy new investment outlooks, having faced a series of cyclical factors such as rising interest rates and structural headwinds, including the growth of hybrid working.”

BTR is growing as a commercial asset at the same time as it expands as a proportion of overall apartment creation. While affected by the same building-cost inflation pressures as traditional build to sell apartments, BTR avoids the lengthy presales period that for-sale apartment projects have to go through to release construction funding from lenders.


Build to rent apartments would account for about 27 per cent of all apartment commencements by FY2025 and would broadly hold around that level for the rest of the decade, Mr Dyer said.


The sector has yet to show the benefit of changes announced in last month’s federal budget to halve the 30 per cent withholding tax levied on foreign investors in the sector and increasing the annual depreciation rate applied to such investments to 4 per cent from 2.5 per cent, the report says.


“Towards the end of the year, if not early next year, is when we expect to start to see them flow through,” Mr Dyer said.

Australia’s BTR pipeline to date is dominated by local developers and investors.

The developer with the largest tracked pipeline of units under constructed, expected or mooted, was the AustralianSuper-backed Assemble, with 2986 units, followed by Grocon-owned Home with 2274 and US-based Greystar, with 1944 units, the report shows.


“The majority of tracked projects are being planned by Australian developers or financed by Australian-based investors,” the report says.
“However, several foreign developers and financiers have either gradually begun entering the Australian market or have been considering it for some time, and we anticipate these changes will prove supportive to this process.”

Build-to-rent developments could deliver as many as 150,000 apartments over 10 years – triple the existing forecast – if the 30 per cent federal government withholding tax were to be reduced, analysis by consultancy EY for the Property Council of Australia found in April.


However, the fast-growing sector is not yet creating much-needed rental stock targeted at lower-income workers, with the 15,789-strong pipeline of the top 10 developers still skewed towards a premium offering, the report says.


“However, an increasing number of providers are looking towards an affordable model with support from federal and state governments seeking to address the nation’s housing shortfall,” it says. “As we have noted previously, a middle market for BTR developments remains absent.”

Following the federal government’s long-awaited reduction in the withholding tax rate on foreign investment, further state-level tax changes were likely, the report says.


“A policy roadblock in several states is the continued imposition of foreign owner surcharges,” the report says.
“At a federal level, there is scope for more changes to be made, with this largely related to altering the handling of GST credits to bring laws in this space in line with build-to-sell developments.
“Further opportunities may originate from the National Housing Accord, which aims to unlock private investment to deliver one million new, affordable dwellings over the five years from 2024.”


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View source version on afr.com HERE

https://www.afr.com/property/commercial/new-investment-in-build-to-rent-to-eclipse-offices-logistics-by-2030-20230605-p5de1q

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