David Tricarico takes a look across the international property market to provide insights into the latest trends and movements across the sector.
The property sector is an area I am constantly fascinated with, by its innate ability to adapt, grow and expand the realm of possibilities. This is why I am constantly looking across not only our local market but nationally and internationally to get an understanding of the latest trends, movements and action that is taking place across our great sector. Over the past couple of years, America and more recently the UK has seen a rise in ‘Build-to-Rent’ projects.
These schemes could not be more foreign to a local developer like myself, but it is interesting to dig a bit deeper into their benefits, why they are currently unfeasible in Australia, and where the future might lie in bringing such plans to our shores. Just as the name applies, Build-to-Rent is a scenario where the developer builds a project with the direct intention of leasing out the individual rooms as opposed to selling them off.
In America, this has been due to a rise in private institutional investors who are not afraid to seek tenants across the entire income spectrum. In the UK, this has led to redevelopments and refurbishments of run-down housing, modernising it and providing a place for low-income households to set up home. However, in Australia, this has failed to take off due to several factors.
The first being our current market conditions would only make such projects profitable if they were catered to high-end clients. Secondly, the strict and tightly regulated banking sector does not have an appropriate funding model yet for how it could be done successfully with developers.
Thirdly, our increasing supply in rentals is not the same trend that has been seen in the US and the UK with their ever-shrinking supply. Lastly, the taxation landscape for this form of project is currently highly unfavourable to institutional investors that are looking at investing in such an asset.
With 40 per cent of Australians now renting by choice, and the number of households in the rental sector equalling that of the ownership segment, Build-to-Rent must be looked at as a viable option. However, current legislative impediments remain in the way and will continue to dampen any growth in this area unless the change is pushed through.
Luckily this is slowly starting to take place, with recent initiatives by the Federal and State governments in tax incentivisation’s and removing legislative barriers to the industry. I can imagine developers and investors across the market see this as a welcomed step.
Anything the government can do to help alleviate housing shortage and free up investment in the property sector is going to lead to more desirable outcomes. It will be interesting to keep watch on which ways the wind blows in this area in the future.
David Tricarico is a director of Adepto Co and the author of davidtricarico.com.au
This is a sponsored post.