Grant Mackinlay discusses the potential viability of the multi-family sector as a separate investment class in Australia.
If you’ve opened the Property section of the Australian business papers recently you would have noticed articles discussing the emergence of a new sector in the Australian property market – ‘build to rent’.
It can be defined as medium to long term investments in residential assets for rent. The owner becomes the landlord to a large number of residential tenants generally on longer term leases.
Sometimes referred to as ‘multi-family’, this sector is well established in other countries but is only in its infancy in Australia.
Commercially, property developers in Australia have historically embraced the build to sell model because rental yields on build to rent projects didn’t stack up.
In the 2017 Federal Budget, the Government announced amendments to the MIT provisions to encourage investment in build to rent affordable housing by Managed Investment Trusts (MIT).
However, the Government recently released draft legislation enacting these measures but went further to include an integrity measure to prevent MITs investing into residential property other than affordable housing.
Large property players and investors have begun to dip their toes into the sector and yesterday’s announcement significantly limits the attractiveness of the build to rent sector to foreign investors.
Taxes will continue to play a role in determining the viability of potential build to rent projects:
As yields in other sectors tighten, long term capital may come become more interested in the sector, but will still need to consider questions such as:
The implications of the recent draft legislation, and future policy developments, will determine the long term viability of the build to rent sector as a separate investment class.