[+] White Knight: Australian Super Funds Back Build-to-Rent

Aspiring build-to-rent developers say the federal government’s withholding tax is hampering the emergence of the sector in Australia. The Productivity Commissioner rejected calls for the 30 per cent MIT withholding tax to be reduced, claiming the market-rate build-to-rent developments did not address the lack of affordable apartment supply. But a new wave of superannuation funds are taking up the challenge to tackle affordable and key worker build-to-rent development on Australian turf. In 2020 AustralianSuper bought a 25 per cent stake in Assemble’s build-to-rent-to-buy model. The fund is investing in 15 Thompson Street, Kensington, and 4 Ballarat Street, Brunswick, both of which are under construction. Assemble recently opened the doors on its first project at 38 Albemarle Street at Kensington. The super fund also invests heavily in the mature build-to-rent sector in the US. And it’s not the only superannuation fund turning its hand to the niche asset class. Aware Super recently launched its property arm, Aware Real Estate, with a remit to build a $7-billion property platform across multiple sectors with a strategic pillar focused on build-to-rent. Aware Real Estate chief executive Michelle McNally says affordable build-to-rent developments are the super fund’s sweet spot to help provide solid returns to its 1.1 million members and fill a need in the community. “We’ve progressively entered the market, initially by purchasing excess stock from developers, underwriting planned developments and now, increasingly, developing our own projects,” McNally says. “By focusing on sites close to important urban infrastructure including hospitals, schools and transport, we can also meet the needs for our key tenant target group, essential workers who need to live closer to their place of employment and reduce commuting time. “Underpinned by our Essential Worker Housing program, residential property in Aware Super’s portfolio has delivered targeted risk-adjusted returns.” ▲ Aware Real Estate chief executive Michelle McNally says there are compelling opportunities in the build-to-rent sector for super funds. McNally says more superannuation funds are moving into the build-to-rent sector, boosting housing supply and diversity of housing choices. “Funds like Aware Super, with the scale and expertise to be early movers and identify compelling opportunities in the [build-to-rent] sector, can play a role in helping it mature. “Aware Real Estate and Aware Super have been in this space for several years now so we’re really at the forefront, and we can see more super funds moving into residential property as build-to-rent will become more mainstream as the market evolves and the scale develops.” Aware Real Estate has about 500 build-to-rent apartments in its portfolio across New South Wales, Victoria, Western Australia and the ACT, and has a further 1200 apartments in the pipeline. Notably its Illoura Place development at Liverpool in Sydney, which will comprise 314 apartments, 8000sq m of A-Grade office accommodation and ground-floor retail. The Productivity Commission’s National Housing and Homelessness review report outlines a number of strong recommendations aimed at improving housing supply and levelling the playing field for build-to-rent housing investment. But it stops short of providing MIT (managed investment trust) withholding tax concessions, which the industry claims is making it difficult to attract institutional investors. ▲ A render of the Gurner-Qualitas build-to-rent project in Parramatta. Managed investment trusts that invest in residential property face a withholding tax rate of up to 30 per cent on distributions to foreign residents, a higher rate than applicable to domestic investors or for other property investments. It is estimated there are about 16,000 apartments across 40 build-to-rent developments in the pipeline, which the commissioner’s report acknowledged could “reflect barriers to institutional investment in Australia, including low rental yields and uneven tax settings”. Currently New South Wales and Victoria provide concessions on land taxes for eligible build-to-rent developments, which could boost housing supply into the future, but the report warns governments should not favour institutional investors. “There is a case for governments to level the playing field and review unnecessary barriers to investment. This could marginally increase the supply of rental housing, although the extent to which build-to-rent construction just replaces other construction is contested and has not been empirically studied,” the report says. The report says that the developments were “poorly targeted” for housing affordability, predominantly aimed at middle to high income earners. A concept that affordable build-to-rent developer Assemble’s managing director Kris Daff agrees with. Daff says he believes the MIT withholding tax should be halved to 15 per cent, but it should be tied to the provision of affordable housing. He says the build-to-rent lobby groups crying poor was “all kinds of nonsense”. “Investors at the scale of build-to-rent developers like Oxford Investa and Greystar don’t invest in the hope of a future tax concession. It’s a long-term investment,” Daff says. ▲ Residents have moved into Assemble's 38 Albemarle Street, Kensington, affordable rent-to-buy project. “It’s quite irresponsible for the Commonwealth to give away tax revenue without some kind of linked outcome. “I think they should change it to 15 per cent—but only for developments that included an affordable component. Otherwise the government is giving away revenue, and it is still having to create more affordable housing. “Industry needs to solve for some of the housing pressures.” Assemble has the financial backing of AustralianSuper for its build-to-rent-to-buy model, and residents have just moved into its first iteration in Kensington, Melbourne. But Alt Living chief executive Chrystan Paul says the report overlooks the “crucial role” that institutional capital can play in unlocking new supply across the affordability spectrum. “For new rental supply to be meaningful, the build-to-rent sector needs participation from institutional capital,” Paul says. “ Research out of Finland provided evidence on how the delivery of new market-rate rental housing triggers moving chains that quickly reach middle and low-income renters.” Paul says the although institutional capital is focused on market-rate build-to-rent projects currently, it would have a natural flow-on effect through to the affordable space. “The build-to-rent industry is not seeking ‘subsidies’ from the federal government, rather we are seeking for the tax framework to be normalised and to allow investors to be on a level-playing field to other residential commercial asset classes—such as student accommodation,” he says. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] White Knight: Australian Super Funds Back Build-to-Rent

Want to read more?

Stockland Re-Enters Density in $5bn Apartment Play

Brisbane Developer in Cross River Rail Compensation Tussle

Touch, Taste, Theatre: What’s Driving Mondrian’s Success

Relevant or Redundant: Will Tech Kill Display Suites?

Missing Heart: Why The Gold Coast Needs a CBD

[+] White Knight: Australian Super Funds Back Build-to-Rent

Want to read more?

Stockland Re-Enters Density in $5bn Apartment Play

Brisbane Developer in Cross River Rail Compensation Tussle

Touch, Taste, Theatre: What’s Driving Mondrian’s Success

Relevant or Redundant: Will Tech Kill Display Suites?

Missing Heart: Why The Gold Coast Needs a CBD

Midrise Tower Plans Pitched for Take-Off at Tugun

Resimax, Oreana Strike $14m Deal for Eynesbury Village

Queensland’s $2bn Push Opens New Housing Front

Midrise Tower Plans Pitched for Take-Off at Tugun

Resimax, Oreana Strike $14m Deal for Eynesbury Village

Queensland’s $2bn Push Opens New Housing Front

Stockland Re-Enters Density in $5bn Apartment Play