The property industry has mixed feelings about the tax incentives for the build-to-rent sector introduced by the Federal Government this week.
Assistant treasurer Stephen Jones introduced the changes within the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024.
Currently the sector makes up 0.2 per cent of the Australian housing market compared to 5 per cent in the United Kingdom and 12 per cent in the US.
The incentives aim to increase that percentage by reducing the final withholding tax rate on eligible fund payments from managed investment trusts, from 30 per cent to 15 per cent, which is similar to that of other sectors.
The depreciation rate for capital works would jump from 2.5 to 4 per cent per annum, cutting the depreciation period to 25 years.
The key requirements for new properties is that 50 or more apartments have a minimum lease period of three years, projects need single ownership for at least 15 years, and 10 per cent of homes in the project have to be tenanted.
Local Residential co-chief executive Matt Berg said the devil was in the detail of the wording and the legislation that was bringing both comfort and confusion.
“It was nowhere near as good as what the industry was expecting, or what had been told at a headline level,” Berg said.
“It does create unfortunately a little bit of an element of uncertainty around the current thinking of the government in their drive for more housing.
“There are some things being said that gives general comfort and then there are some actions being taken that confuse the sector and probably concern the capital, and we are getting that ... feedback.”
Property Council of Australia chief executive Mike Zorbas said the detail of the legislation did not live up to the Federal Government’s intended goals.
“The legislation does not match the government’s welcome ambition to get us to the 150,000 homes we know are possible, as modelled by [consultants] EY,” Zorbas said.
“Right now, we have some of Australia’s best companies seeking investment partners to create a watershed new housing option.
“And yet it is easier to invest in every other kind of property that builds our cities than the new homes we desperately need, and that a level investment pathway would unlock.
“This legislation does not yet level that pathway and it fails to equalise the treatment of early adopters, leaving a future market less liquid than it needs to be.
“Investment for all housing is thin on the ground just when labour and material costs are peaking and planning systems are stuck in the 1980s.”
Australian Super Funds Association chief executive Mary Delahunty welcomed the proposal but said modifications were needed.
“ASFA ... is supportive of the encouragement of superannuation investment,” Delahunty said.
“The BtR sector has the potential to make a significant contribution to the housing needs of Australians, while yielding appropriate risk adjusted returns for investors.
“It’s important that the investment settings enable superannuation funds to have the opportunity to make a contribution.”
This includes creating a consistent definition of affordable, clarity around market rents, opening opportunities for key workers to be considered as potential tenants, a reduction in the hold period from 15 to 10 years and look into GST.
The PCA also said that the requirements in the changes duplicated those already held by state and local governments, and advocated for a differentiated 10 per cent withholding tax rate and “grandfathering” existing projects into the framework.
In April the Federal Government invited stakeholders to make submissions on the proposed changes that attracted responses from such heavyweights as Mirvac and Sentinel Australia.
The assistant treasurer Jones said the bill would ultimately incentivise construction and increase stock.
“Build-to-rent is still a nascent industry in Australia and to date has generally been more focused on luxury developments,” Jones said.
“Our changes are intended to increase rental housing supply more broadly, including in the area of affordable housing.
“We need to make use of every lever available to improve the supply of housing, which is the only long-term solution to Australia's housing challenge.”