Build to Rent Tax Policy

The new buzzword being spruiked around is Built to Rent and it seems to have a policy behind it. Whilst I don't consider the idea anything new from what I read there is some tax benefits to them but I am getting lost in some of the acronyms being used.

Does anyone know something that explains it that is more accurate than news.com but easier to understand than theoretical physics?

As far as I'm understanding I have generally been involved in this idea for years so it's nothing new to me. At least 90% of what I build I hold to rent. Some things are in personal names which probably doesn't work for the tax policy (what I gather) but the rest is corporate trustees and discretionary trusts. So I'm trying to understand the nuances of "why" this is a new thing or it is just like rentvesting where we give it a buzzword name but people have been doing it for years?

I'm interested in:
- what set up qualifies an investor/developer to get the 15% tax rate instead of 30%.
- Are both major parties for this and when would it be likely to come in?

 

This...?

The build-to-rent sector, also known as multi-family, involves apartment blocks held for rental by investment funds and institutional investors rather than the usual build-to-sell model employed by developers in Australia, where apartments end up in the hands of owner-occupiers and small-scale investors.


The build-to-rent sector typically comprises larger apartment blocks held by an investment fund or an institutional investor.

US build-to-rent giant Greystar, which has an $US80 billion portfolio of more than 430,0000 units globally, is eyeing a pipeline of projects in Australia, welcomed Labor's proposal, which would remove a disincentive for investment, according to Chris Key, its managing director for Asia Pacific and Australia.

link

“Build-to-Rent housing is purposely designed and managed for the needs of renters, offering long leases, purpose-built units, shared facilities and investment in community. "

Doesn't sound appealing to me

 

I am also super interested in how to qualify. I haven't found any information about it either.

I'm suspecting the criteria will end up being out of reach for most developers though. We might need to team up!

 

The future



Seriously Big Blocks of Flats In China

 

@Redwing yes that's what I'm talking about. There seems little actual information on it and I wonder if there will be a minimum spend/no of units which I would see as a policy fail as who wants only high rises when smaller low scale developments can generate the same benefits.

@euro73 is this the "new" NRAS equivalent policy? NRAS was all built to rent too but instead of giving an annual payment to the owners this gives a tax break to the developer/owner?

 

I don't believe it is westmyfster - I believe it's just part of Bill's wider housing policy and that there may also be an NRAS 2.0 ( or whatever they end up calling it - and assuming they get in ) offering tax credits of $8500 for 15 years ...but the details around these things arent quite clear yet, so we will all need to wait and see.

May be worth remembering that Morrison has already tried to get institutional investors to deliver affordable housing by announcing some CGT concessions in the 2018 budget. As I recall, it provides for CGT to be applied at a rate of 40% rather than 50% for those institutional investors building affordable housing and making it available for 10 years .... gee.... you can have a 40% rate of CGT instead of a 50% rate of CGT in return for giving up 20% of your rent for 10 years - I said at the time it was a $hi7 idea , would get zero interest from developers or institutional investors, and so it has proven.

Morrison also launched a "bond bank" of sorts for the community housing providers where he allowed them to refinance some of their debt to lower rates - but no NEW funding for NEW developments was available. Ive had discussions with some CHP's and while it assisted a little in reducing their interest rates and allowing them to access a little equity, they have all told me it provided no assistance whatsoever in delivering any new stock. So another complete flop on the housing affordability /rental affordability side of things from Morrison and co.

And in NSW, the Affordable Housing SEPP has existed for a decade now.... and while it's had some success in delivering some additional affordable housing... it's fallen well short of targets..... until NRAS came along and made it financially viable for developers . I know because it was my bread and butter .... I get calls all the time from developers wanting NRAS for their affordable housing- they cant sell it without the NRAS, and they dont want to sit on it for 10 years until they can sell it.

We have many lessons from here and o/seas about what works. We know that the only way developers will embrace affordable housing on any scale is via incentives such as NRAS or the Low Income Housing Tax Credits in the US - on which NRAS was largely based.... and which is a particular favourite of Trumps son in law ( and may other rich listers) who owns businesses that run tens of thousands of them . Without the tax credits- affordable housing just doesnt fly - unless the Govt is prepared to fund all the construction..... which they are not.

The idea for the last 10 years or so ( in NSW at least) has been that Community Housing Providers could deliver it with scale. T he State would give them great sites at a huge discount ( or free) and the CHP would go off and form JV's with big builders and get the stock built. Lucy Turnbull re-launched the idea with much fanfare 3-4 years ago. Again, I said at the time that without tax credits no one would get involved- and so it has been proven. To try and create some more incentive, Morrison did the 40% CGT and cheap money policies.... but what every politician fails to understand is that CHP's are beaucracracies run by public servants, who lack the acumen to make it happen on the scale required - there are a handful with the acumen to be fair - I worked with several during the NRAS years who id happily work with again - but not enough of them. And private sector developers ...well they arent idiots. They aren't going to build stuff with a 20% rental discount built in for 10 years , and with no way to sell them at a profit... does anyone seriously believe investors will buy them at full price with a requirement that they have to be used as rentals for 10 years and they have to be rented at 20% below market? ... and you get ZERO compensation or tax credits for doing so....? No chance.

If they want large scale affordable housing delivered, they need to let the private sector do it and in order to get them interested they need to provide tax credits. Without the credits, the stock is unsaleable at a level that makes it commercially viable. Without the tax credits, build to let wont be viable either... do we really believe institutionals are going to build massive apartment blocks generating less than 3% returns if they arent getting tax credits? Everyone knows its the only way it will work.... then politics gets in the way.

As far as the 15% tax rate is concerned... anyone who has ever read my posts knows that you can use NRAS to achieve a 0% tax rate .

So lets see what the Labor policy looks like if and when they win and the details come out...

 

The ALP dont have ANY policy in writing. They used to have a website but took it down in the past week. The qualification criterea has never been disclosed but the Tax Institute had discussions with the Shadow Treasurer concerning some measures and obtained limited guidance. The policy intention was aimed at large institutional arrangements and not just a corporate tax entity (company). Likley listed and unlisted MITs.

The key concern that was noted is the policy doesnt fit well with the franking credit policy changes. If any profit is paid after tax to investors in the form of either a trust distribution (franked) or company dividend (franked) the lower corporate tax paid will not benefit many investors in these securities as the investor pays the full and final tax rate.

1. Refundable franking credits may pose a issue; and
2. Uplift tax may be greater if the taxpayer marginal tax rate is greater than the rate already paid

 

Interesting thread, I only found out about Build to Rent having heard that Element 27 Apartments were complete in Subiaco;
Rent disrupter opens its doors in Subiaco - Hillam Architects

I didn't realise there were tax advantages.
It had the downside of not able to claim GST credits.