Inside Build-To-Rent
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Inside Build-To-Rent

The Australian uptake of the ‘new’ development platform remains dwarfed by overseas expansion — but things are moving.

By Terry Christodoulou
Thu, Jul 8, 2021 2:23pmGrey Clock 2 min
Build-To-Rent is a relatively nascent residential living market — one that is quickly moving beyond an ‘emerging’ tag as it spreads out across Australia. 
To understand the platform is to comprehend that where standard development equates to the construction of residences to be sold on completion, BTR developments are held, operated and rented by the developer. 
While the premise is straightforward it does present with a number of issues — among them land tax discounts and premium land transfer tax, alongside funding and consumer uptake issues that have caused it to stutter in its national rollout. 
Where the BTR industry in Australia continues to find its footing as a fresh consideration, BTR has been delivered and engaged in US markets for the best part of 40 years. Elsewhere, European markets such as London — which has expanded rapidly in alignment with federal government support since 2013 — has around 28,000 BTR properties completed, 16,000 under construction and 38,000 in planning, according to Statista research. 
Local experts such as Craig Godber, CBRE’s Associate Director, Head of Residential and Build-To-Rent Research Australia indicates that local trepidation may be more a case of ‘seeing is believing’ amongst prospective consumers. 
“I think that Australians have always partly accepted that there’s either owning a home or private renting, and it’ll take a few successful projects before a gradual uptake by renters is made,” said Godber. 
Where BTR differs from traditional renting is in its want to retain renters across extended periods and through a number of additional services such as dedicated concierge services, mail rooms, meeting rooms and mixed-use office spaces. 
Further, with one central controlling body overseeing each building operation, BTR offers flexible long-term tenancies, client-centric onsite management as well as appealing allowances in rewards to personalisation (painting and decorating) and pets. 
The caveat is that more lifestyle services means increased outlay. 
“There is the expectation that rents in BTR developments will be higher as opposed to the private market, and that may take some time for the consumer adjust to,” added Godber. 
The premium services offered by BTR have dispelled early market fears about it being rebranded social housing.
“That perception existed early on, particularly as the developments are purpose built, but as people and investors continue to learn about it that stigma fades away.”
Godber is increasingly optimistic about the future, buoyed by with a number of projects by renowned operators Mirvac and Grocon and an expansive market being further fed by various overseas developers. 

Sydney and Melbourne remain key with the Victorian capital outpacing the northern city’s pipeline by almost double, according to research from Knight Frank. 

The number of BTR apartments in Melbourne’s planning currently sits at 6000, well ahead of Sydney’s 3300 and Brisbane’s 1600.

11.1% of development sites purchased in 2020 in Melbourne were earmarked for high-density, BTR projects while in Sydney that figure was 0.7%.

Despite the recent interest and development proposals in the pipeline uptake is still expected to be rather gradual when compared to the recent explosions in popularity of BTR in Europe. 
Godber indicates that further government assistance and incentive, aligned to increased interest at an institutional investor level will help BTR continue to grow across Australia. 
“Financial models, the combination of better taxation and the structuring of funds as institutional investment vehicles for build-to-rent are all essential to seeing the sector continue to grow.”
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Mortgage holders should brace themselves for more pain as the Reserve Bank of Australia board prepares to meet tomorrow for the first time this year.

Most economists and the major banks are predicting a rise of 25 basis points will be announced, although the Commonwealth Bank suggests that the RBA may take the unusual step of a 40 basis point rise to bring the interest rate up to a more conventional 3.5 percent. This would allow the RBA to step back from further rate rises for the next few months as it assesses the impact of tightening monetary policy on the economy.

The decision by the RBA board to make consecutive rate rises since April last year is an attempt to wrestle inflation down to a more manageable 3 or 4 percent. The Australian Bureau of Statistics reports that the inflation rate rose to 7.8 percent over the December quarter, the highest it has been since 1990, reflected in higher prices for food, fuel and construction.

Higher interest rates have coincided with falling home values, which Ray White chief economist Nerida Conisbee says are down 6.1 percent in capital cities since peaking in March 2022. The pain has been greatest in Sydney, where prices have dropped 10.8 percent since February last year. Melbourne and Canberra recorded similar, albeit smaller falls, while capitals like Adelaide, which saw property prices fall 1.8 percent, are less affected.

Although prices may continue to decline, Ms Conisbee (below) said there are signs the pace is slowing and that inflation has peaked.

“December inflation came in at 7.8 per cent with construction, travel and electricity costs being the biggest drivers. It is likely that we are now at peak,” Ms Conisbee said. 

“Many of the drivers of high prices are starting to be resolved. Shipping costs are now down almost 90 per cent from their October 2021 peak (as measured by the Baltic Dry Index), while crude oil prices have almost halved from March 2022. China is back open and international migration has started up again. 

“Even construction costs look like they are close to plateau. Importantly, US inflation has pulled back from its peak of 9.1 per cent in June to 6.5 per cent in December, with many of the drivers of inflation in this country similar to Australia.”

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