Build to rent investment

Discussion in 'Property Market Economics' started by ollidrac nosaj, 16th Sep, 2017.

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  1. ollidrac nosaj

    ollidrac nosaj Well-Known Member

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    Huge investments at risk as Treasurer slams door on build-to-rent
    • The Australian
    • 9:16PM September 15, 2017
    Australia’s nascent build-to-rent sector has been thrown into turmoil by new federal government rules that cut off the main avenue for global players to invest in the area, with warnings that the failure of the sector could worsen the affordability crisis.

    The future of the build-to-rent sector — which has been pitched as potential $300 billion saviour to drive investment into Australia’s housing supply — was hanging in the balance after Treasurer Scott Morrison shut the door to foreign institutions receiving favourable tax treatment.

    The model of building apartments to rent has already been embraced by top companies, including Lendlease, Mirvac and shopping centre giant Westfield. Private groups like Grocon and Salta have also flagged their ambitions.

    But the Treasurer has unveiled a new regime that would mean Managed Investment Trusts — the main conduit for international groups investing into local real estate — would no longer be able to invest in residential property schemes unless it was low-cost community housing.

    Most private companies getting into the area are hoping to tip more lucrative mid-range apartments into build to rent schemes and keep control of them.

    But to qualify for favourable tax treatment the homes must also be run by community housing providers and held by investors for a decade.

    Attracting offshore capital into local build to rent schemes is viewed as critical to their success and major international pension funds could shun Australia schemes if returns are too low.

    The surprise move could put at risk the estimated $300bn in investment that real estate agency CBRE has forecast the build-to-rent sector could expand to in coming decades.

    Major players including Mirvac and Lendlease declined to comment yesterday but top executives were seeking meetings with the federal government as they deal with the proposed rule changes.

    Senior property sources said the government would deal with industry concerns in future rulings but Property Council of Australia chief executive Ken Morrison said that the legislation released yesterday risked stalling the build to rent housing sector before it started.

    He noted the government’s desire to ensure capital gains tax concessions announced in the May budget were targeted towards affordable housing.

    But he warned the unintended consequence of the plan would be to “completely close down” the capacity of Managed Investment Trusts to invest in most schemes.

    “This risks stalling build to rent before it starts,” the Property Council’s Mr Morrison said. He claimed that the funds — where developers and pension groups own apartments and rent them out to individuals — could deliver tens of thousands of new homes at all levels.

    “In the US, UK, Canada and elsewhere, a scaled-up pipeline of at-market rental can help pull forward more investment in affordable rental housing,” he said.

    Industry experts also see the rules as a threat to the industry.

    felt in our housing market and ensure our key hubs can accommodate the people we need to grow the economy,” Ms Short said.

    She warned the changes could also hit the ability of Managed Investment Trusts to diversify to invest in similar assets in the US and Britain, where superannuation funds including REST, have been active.

    Shadow Treasurer Chris Bowen accused the government of making “counter-productive” policy, saying the move had “completely blindsided” the housing sector.

    Mr Bowen claimed the shift “ambushed” property and construction companies. “This shock move could kill the fast emerging build-to-rent movement that has already taken off in the US and more recently in the United Kingdom,” he said.

    “This move has the potential to cruel new supply funded by institutional investors,” Mr Bowen said. “This bizarre banning of MIT purchases of residential property will directly hit housing supply.”

    CBRE head of research for Australia, Stephen McNabb, was sanguine about the potential impact. He said the tax system, by itself, was not “make or break” for investment into the area, particularly for the middle to high quality segment that most institutions will chase.

    The new products could meet a wider range of investment objectives. “Tax policy is a secondary consideration to these factors,” Mr McNabb said.

    “The future of the asset class is not contingent upon government policy designed to directly influence affordable housing.”

    He added that the government needed to tread a “complex pathway” to ensure its policy was aligned with preferred delivery models for residential accommodation, including the supply of key worker housing.

    Developer lobby group the Urban Taskforce said the draft legislation was a positive move and praised moves that would allow investors to obtain a 60 per cent capital gains discount for investment in affordable rental housing.

    Urban Taskforce chief executive Chris Johnson said restricting Managed Investment Trusts to only acquiring affordable housing, and eliminating investment in general residential property, was “good policy” to encourage more funds into the affordable sector.
     
  2. Trainee

    Trainee Well-Known Member

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    What tax concessions are they talking about? Main negative for trusts owning entire buildings would be land tax.
     
  3. ollidrac nosaj

    ollidrac nosaj Well-Known Member

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    GST.



    Build to rent emerging as $300b housing industry

    Build-to-rent will be a game changer for the Australian housing market as an estimated $300 billion worth of residential assets may be owned by institutional investors within the next couple of decades if the multifamily sector evolves in the same vein as the US, according to a CBRE report.

    Multifamily developments are gaining traction in Australia and the major residential investors Lendlease, Mirvac and Stockland are all looking to offer the product.

    While it will not be a panacea to housing affordability, the developers believe it will help first home buyers and investors with limited funds to enter the market.

    CBRE's head of research for Australia Stephen McNabb said the multifamily sector represented about 15 per cent of properties with five or more units in the US, a position obtained after 25 years of growth.

    In total, the sector accounts for 20 per cent to 25 per cent of the $US2 trillion in institutional property investment in the US, ranking it as the second largest investor allocation after office property.


    "Factoring in that 35 per cent of Australia's population rent, if the market here evolved to the level of the US, up to 5 per cent of the country's dwelling stock by value could be institutionally owned in several decades," Mr McNabb said.

    "In today's dollars, that represents about $300 billion worth of residential assets or about 300,000 apartments."

    Lendlease chief executive Steve McCann said at the full year results that, while imposition of GST in Australia made it uncompetitive for developers compared with building for resale, the build-to-rent sector was emerging as a new asset class.

    "The units-to-rent sector is one we are entering as it is well established in the US and London," Mr McCann said. "It provides a potential new asset class in our investment segment.

    "In Australia, it is a possible product for us, but there are tax issues that make it a challenge. The sector needs government support to make it viable."

    Knight Frank's director of research and consulting in Australia Paul Savitz has predicted that, during the next five years, it is expected that close to 40,000 purpose-built student accommodation (PBSA) beds across Australia will be developed, as both domestic and global institutions awaken to the potential of this maturing investment class.

    "For those ineligible for affordable housing, or for those unable or unwilling to enter the owner-occupier market, there has been a reliance on small-scale, largely unregulated 'amateur mum and dad landlords' who either rent out their own former homes or accumulated portfolios of properties," Mr Savitz said.

    "The professional, large-scale institutions now focusing on this new investment asset class are looking to build and construct, keeping these dwellings for the long term, and harvesting the income from rents, in the same way as the new wave of PBSA institutions are operating."

    Mr McNabb said while build-to-rent would take pressure off existing housing stock, it would not, by itself, be a panacea for housing affordability.

    "There will, however, be economic benefits in reducing household debt and the potential to transform financing of the sector away from traditional intermediated finance for development and end-product purchasers," Mr McNabb said.

    New funds
    "The federal government would need to consider how zoning and tax changes can provide certainty to the asset class."

    Mirvac has already forged a path with the engagement of UBS to launch a build-to-rent apartment vehicle with a potential value of $750 million.

    Susan Lloyd-Hurwitz, chief executive of Mirvac, said she saw an opportunity for an institutional rental market to operate in Australia and "we are currently preparing to invite investors to join us in the opportunity".

    "Build-to-rent can provide secure, quality, long-term and professionally-managed rental accommodation in key urban locations providing people with this choice and security," Ms Lloyd-Hurwitz said.

    Mirvac will create a fund for its "Liv by Mirvac" platform, which will start with a complex in Sydney Olympic Park then expand with demand.

    Funding will be another key consideration, according to Simon Cowley of CBRE's debt and structured finance team.

    "In the early phases, the capital stack will be formed mainly through equity rather than debt," Mr Cowley said.

    "It will entail institutional investment via either the forward-funding or forward-commitment route, via joint ventures with developers and through partnering with asset managers with expertise in this sector."

    Frank Lowy's Westfield is also teaming up with apartment operator Greystar to launch its first residential tower in San Diego in the US as it enters the build-to-rent apartment sector.

    Westfield has indicated it will pursue build-to-rent schemes in both US and Britain, and the project at its Westfield UTC mall in San Diego is the first to launch. Greystar, based in South Carolina, is the largest apartment operator globally and runs more than 415,000 units in about 140 cities.
     
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