Corporate landlords are fighting for tenants’ rent money with pools, bars, bowling alleys — but what are the risks?
Renters are paying upwards of $1000 a week to live in tenants-only towers where corporate landlords pledge bars, pools, rapid repairs, and even sometimes free rent. But what are the risks?
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Bowling alleys, concierges, co-working spaces, pools, saunas and masseuses – Melbourne’s top-end tenants are living the high-life in a new breed of rentals tailor-made for them.
But renters rights’ groups have warned the city’s burgeoning build-to-rent complexes could come with new types of problems for lessees swapping the traditional mum-and-dad investor for a corporate landlord.
Made exclusively for tenants by a mix of super funds and developers looking to the cash flow a few hundred apartments’ worth of rent can provide, there are almost 3200 build-to-rent residences across Melbourne.
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Charter Keck Cramer research national executive director Richard Temlett said that number was likely to double within the next 12 months, and triple fairly soon after that, with more than 7500 under construction.
Mr Temlett said a further 12,231 were approved for development and could be taking tenants in as few as two or three years if conditions improved for developers.
Current approvals data also shows that across the next 3-4 years their numbers will equal and potentially surpass those of apartments built by developers planning to sell rather than lease them, making it one of the best positioned solutions to the state’s rental crisis.
“These homes are absolutely critical,” he said.
However, Mr Temlett’s research shows just 77 of the more than 3000 rentals in build-to-rent complexes in Melbourne meet the state planning department’s definition of affordable, or are suited for very low to moderate income earners, with the vast majority rented at 10-15 per cent more than typical market rents in the surrounding suburb.
Better Renting executive director Joel Dignam said while high prices meant only a small segment of tenants could access them, the increased supply and more timely repairs and maintenance being encouraged by the industry to win over tenants were a positive.
But Mr Dignam said they had heard of one Melbourne building owner evicting multiple tenants seemingly so they could test the market to see if higher rents were possible.
“So the thing we are anticipating hearing more of is mercenary behaviour,” Mr Dignam said.
“Where they will be more cut throat about returns. Whereas individual landlords might be more sympathetic.”
He added that while most mum and dad landlords were likely to baulk at putting eviction processes in place within a week of a tenant’s rent being late, corporate landlords were less likely to delay.
Major developers are also backing the strategy with the Home group currently housing 1200 residents across 800 apartments in two tenants-only towers in Melbourne, while developer Mirvac has 850 residents at their LIV Munro site in the CBD and will on Monday open a second site, LIV Aston, in Docklands with a further 474 homes in it.
With home also working on a further 500-home site to be opened soon, the pair will have about 3500 apartments and thousands of tenants between them — making them two of the biggest non-government landlords.
Both have evicted a small number of tenants since commencing operations about two years ago.
Home’s boss Christian Grahame said evictions were rare and only occurred when tenants fell behind on their rent, or if there was a safety or behavioural issue impacting other residents – and other options were pursued first.
But he said with a 95 per cent resident satisfaction rating from customer surveys, the vast majority were enjoying their buildings’ higher levels of service and amenity, including pools, lounges and co-working spaces.
Mirvac’s build-to-rent sector lead Angela Buckley said they had evicted a small number of tenants for failing to pay rent.
“That is the reality of being in the rental market,” Ms Buckley said.
However, she said in many cases they first sought to relocate residents to a more affordable apartment – something that could not be done by other landlords.
A studio apartment at LIV Munro starts at $620 a week. Three-bedroom homes start at $1335.
In most cases, Ms Buckley said tenants felt more secure in the building as they knew they wouldn’t be evicted because the landlord had decided to sell or wanted their daughter to move in while she went to uni.
“And there’s a sense of community as people do have a sense of tenure and we have wonderful feedback to our on-site team,” she said.
Part of that is the long list of amenities in their buildings — from wellness and fitness spaces to co-working areas. Another is having online contact methods and a real-world concierge on site to deal with any issues – be it a dog barking or a leaking tap – within a few hours.
Mr Dignam said there were also early signs build-to-rent operators were using their market share to set prices, with many choosing not to list all of their empty residences at the same time and even offering weeks of free rent to entice tenants to keep their asking rents high.
“Build to rent could decide the prices, because they control so much of the stock in an area,” he said.
Ms Buckley said they typically provided tenants with 60-90 days notice before a rent rise, but noted they were trying to raise the standard of renting in Melbourne.
“I have been a tenant myself and didn’t always have a great experience, but renters are a growing cohort and we are trying to deliver a new choice for them,” she said.
Mr Grahame said while they offered discounted rental increases for those who signed up for long-term leases, most chose more traditional annual terms despite higher rental increases.
He said tenants who signed up for a few years today would typically be offered annual increases just below the Consumer Price Index, which grew 3.6 per cent over the year to March according to the Australian Bureau of Statistics.
Those who opted for an annual review would typically have rents increased just over CPI.
“But they know they won’t be asked to leave and they see the flexibility as a benefit,” he said.
CAN BUILD-TO-RENT WORK IN THE SUBURBS?
While build-to-rent sites had raised the bar compared to the vast majority of Melbourne rentals so far, Mr Grahame said Home and other groups were now looking for ways to scale them to suburbia where there would be fewer amenities – but the same level of service that would inspire residents to pay 5-10 per cent more for them than others in the area.
Today, available rentals at their Home Richmond complex start from $855 a week.
Mr Temlett said like the iPhone, which was unaffordable to most when it first launched, build-to-rent developments would increasingly offer more affordable options in the future as other players entered the market with less premium offerings.
However, he warned many of those backing the projects were hoping for a shift in taxation from the current regime, which takes 30 per cent of operators’ income, down to 15 per cent – in line with income streams from commercial property – to make them more viable before mid-tier rental options began to appear.
One of the latest groups to enter the market is a partnership between high profile development firm the Gurner Group and Qualitas. It has arguably raised the bar with their St Kilda Beach House’s features list including everything from a wellness centre with a cold plunge pool and sauna to a co-working level and even a bowling alley.
But rents range up to $1895 a week for a sub-penthouse.
Despite this, since launching the building in July they have now received more than 4000 inquiries from prospective tenants.
Customer care and operations executive general manager Ashleigh Macdonald said they were targeting a $5bn portfolio in the space longer term, after beginning to move the first tenants into their first build-to-rent site in Melbourne this week.
“We want our tenants to be treated exactly the same way as if they had purchased a $20m residence from us down the road at Saint Moritz – our Beach House project has been designed to allow our tenants the opportunity to live their absolute best lives, enjoying all the incredible amenities and services of a multimillion-dollar apartment, without the mortgage,” Ms Macdonald said.
Both Home and Mirvac offer a small number of affordable homes, and both are providing discount options for key workers, with Mr Christiane noting that government subsidies could have those numbers rapidly increased.
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Originally published as Corporate landlords are fighting for tenants’ rent money with pools, bars, bowling alleys — but what are the risks?
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