Restrictive Tax Slashed in Build-to-Rent Boon

Build-to-rent developers are celebrating the removal of a significant hurdle to the fledgling sector as the federal government halves the controversial Managed Investment Trust withholding tax. 

Industry stalwarts have lobbied for years for the 30 per cent tax to be dropped to 15 per cent in line with purpose-built student accommodation assets. 

The federal government announced it would do just that, lowering the MIT withholding tax to 15 per cent for build-to-rent in a move to boost housing supply. 

Residential supply is squarely in the sights of the federal government, announcing it would be developing reforms to increase housing supply and affordability across the country in the next six months. 

As well as the reduction in MIT withholding tax for build-to-rent properties built after July 1, 2024, the federal government announced an increase in the depreciation rate from 2.5 per cent to 4 per cent, where construction commences after May 9, 2023. 

Property Council chief executive Mike Zorbas said the move would breathe life into the asset class and unlock supply through a new form of housing.

“Today’s announcement is a strong step toward addressing and reversing Australia’s growing housing shortage,” Zorbas said.

“Build-to-rent housing, like purpose-built student accommodation and retirement living, is a positive part of the national housing equation and provides tenants with long-term security of tenure, superior amenities and professionally managed properties.”

Head of build-to-rent developer HOME Christian Grahame applauded the “momentous decision”.

Grahame said build-to-rent relied heavily on international institutional investors and halving the tax would help the industry to flourish.

“This milestone announcement acknowledges the positive contribution rental communities can make to Australia’s housing mix—and will lead to the creation of thousands of high quality homes, jobs and additional tax revenue,” he said.

▲ Greystar says the move is recognition of the importance of the sector.

Global player in the sector Greystar said the amendment was a recognition by the federal government of build-to-rent as an institutional asset class.

“The proposed changes will equalise the tax treatment investors are afforded in the other real estate sectors,” a spokesperson said.

“The move is a shift to the fair and equal treatment the industry has been seeking for a number of years and we applaud the government in addressing the issue.

“Greystar is committed to making a meaningful contribution to the creation of new housing supply and providing greater choice for renters in Australia.

“At a time when the shortage of housing across our cities has reached acute levels it is a welcome step that has the potential to unlock a meaningful source of housing supply that can be delivered in an expedited manner.”

Colliers national director of build-to-rent Robert Papaleo said the announcement of the tax being slashed would bring forward transactions in the build-to-rent development site market. 

“I think it's something that will certainly support a more consistent delivery of new supply to what we all know is a supply-starved market,” Papaleo said.

“[Build-to-rent] is particularly reliant on foreign investment. If you look at who the major players are, the great majority have capital from international sources. 

“I do think [the change] is fairly critical for the build-to-rent sector but it can't be seen as a panacea. But it will certainly unlock more supply and accelerate the delivery of that supply.”