- Melbourne accounts for more than half of Australia's build to rent (BTR) market
- The Federal Government recently announced tax cuts to incentivise investment in BTR
- Cushman & Wakefield’s Director of Development Sites & Build-To-Rent in Victoria says the changes are critical
Recently announced national tax reforms to incentivise build to rent (BTR) housing have been met by strong support from industry, with Melbourne in particular set to benefit, according to Cushman & Wakefield .
The Property Council of Australia (PCA) and the Urban Development Institute of Australia (UDIA) were quick to welcome the lowered Managed Investment Trust (MIT) withholding tax rate for BTR projects; the MIT tax rate will drop from 30% to 15% from July 1 next year.
Cushman & Wakefield’s Director of Development Sites & Build To Rent in Victoria, Marcus Neill says this tax cut will be critical in meeting the demand for rental accommodation in Melbourne, where more than half of Australia’s BTR activity is currently located.
In line with the national trend Melbourne is experiencing a tight rental market, meaning renewed investment in BTR would come as welcome relief in the city.
The latest data from SQM Research reveals just 1.1% of all rentals are currently available in Melbourne.
Melbourne rental vacancy
The reduction of the MIT withholding tax rate was coupled with an increase in depreciation benefits from 2.5% to 4% per year for new BTR projects. The changes will make it easier for foreign capital to invest in the Australian BTR market.
A new report from Savills suggests that BTR schemes are expected to make up a greater share of future housing
The report found traditional residential developers who build to sell are looking to mitigate risk within their pipelines. Since rental demand is projected to remain stronger than demand for off-the-plan sales, the share of BTR properties in Australia’s real estate market will increase.
A year ago, Melbourne had over 60% of all BTR apartments either in the planning stage or already operational. While this figure is declining with markets like Brisbane and Sydney, Melbourne still accounts for 53% of Australia’s BTR apartments.
Niell says the new government changes will significantly benefit BTR groups in Melbourne.
“The new tax reforms announced by the government will provide a much-needed boost to the BTR industry, enabling us to meet the increasing demand for rental accommodation in Melbourne.”
Marcus Neill, Cushman & Wakefield Director of Development Sites & Build-To-Rent, Victoria
“The current shortage of traditional BTR apartments in Melbourne is alarming, with only approximately 6,500 completed in 2022 – the lowest in over 10 years.
“This falls far short of the approximately 13,500 apartments needed annually to keep up with demand and forecast immigration.
Niell says the circumstances are made worse by the historically low vacancy rate which he says is likely to continue for the next 2 years.
“This creates an urgent need for more rental accommodation in Melbourne.”
Tax cuts welcomed in WA
The new BTR-friendly announcements were met with approval in WA.
PCA, WA Executive Director, Sandra Brewer welcomed the tax cuts and stressed the importance of eliminating investment obstacles to promote more housing construction.
“Perth is a proven market for build-to-rent and is home to Australia’s first build-to-rent project with Element27 by Sentinel in Subiaco,” Ms Brewer says.
She says build-to-rent apartment living provides a renter-friendly and consumer-first experience.
“The value proposition is evident for people who want a high level of amenity and more security of tenure – but don’t want to buy.”
“Investors in build-to-rent are attracted to the long-term, stable returns.
“Matching tax rates to other property assets classes like shopping centres and commercial office buildings will provide the level playing field needed for future investment.
“Western Australia desperately needs more homes to rent, and these tax changes will assist in unlocking future housing supply.”
Sandra Brewer, Property Council of Australia, WA Executive Director
