Trea­surer ‘halts’ build-to-rent

The Weekend Australian - - BUSINESS REVIEW - BEN WIL­MOT

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 a 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 fav- ourable 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 am­bi­tions in the area.

But the Trea­surer has un­veiled a regime that would mean man­aged in­vest­ment trusts — the main con­duit for in­ter­na­tional groups in­vest­ing in lo­cal real es­tate — would no longer be able to in­vest in res­i­den­tial prop­erty schemes un­less they were low­cost 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 Aus­tralian 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-torent 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 dealt 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 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-torent be­fore it starts,” the prop­erty coun­cil CEO said. He claimed the funds — where de­vel­op­ers and pen­sion groups own apart­ments and rent them out to in­di­vid­u­als — could de­liver tens of thou­sands of new homes.

“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.

EY real es­tate leader Selina Short said the move would “sig­nif­i­cantly ham­per” the area.

“A healthy build-to-rent sec­tor will play a vi­tal role in re­leas­ing the pres­sure be­ing felt in our hous­ing mar­ket and en­sure our key hubs can ac­com­mo­date the peo­ple we need to grow the economy,” Ms Short said.

Op­po­si­tion trea­sury spokes- man Chris Bowen ac­cused the gov­ern­ment of mak­ing “coun­ter­pro­duc­tive” 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,” he said. “This bizarre ban­ning of MIT pur­chases of res­i­den­tial prop­erty will di­rectly hit hous­ing sup­ply.”

CBRE’s 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.

De­vel­oper lobby group 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 CEO 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.

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