Tax rate a turn-off for build-to-rent units

Housing construction worth $6bn is at risk because of an uncompetitive tax rate on build-to-rent apartment developments.

Site engineers Chris Nixon and Jo Cheng at a Mirvac development in Melbourne on Monday. Picture: Aaron Francis

Housing construction worth $6bn is at risk because of an uncompetitive tax rate on build-to-rent apartment developments, according to industry sources and the NSW government, which is urging the federal government to make foreign investment more attractive in the fledgling sector.

NSW Treasurer Dominic Perrottet wrote to federal Housing Minister Michael Sukkar urging the Coalition to “consider complimentary policies” to accelerate projects, a February letter ­obtained by The Australian shows.

“The NSW government has brought forward tax and planning reforms to support the BTR sector,” the letter said, pointing to ­recent 50 per cent reduction in land tax for eligible projects and exemption from foreign investor surcharges for new build-to-rent developments until 2040.

The federal government lifted the Managed Investment Trust tax rate applicable to BTR developments from 15 per cent to 30 per cent in 2017, which industry saw as an ineffective attempt to reduce surging Chinese investment.

The Australian understands three foreign investors, Investa (owned by Canadian investor ­Oxford), US building giant Greystar and global investor Blackstone have Australian projects worth $6bn, or 10,000 apartments, on the drawing board, but these are not guaranteed to proceed.

“Australia is particularly well positioned to attract billions of dollars in global investment in the build-to-rent sector,” said James Greener, an Investa fund manager. “The MIT tax rate, however, remains a significant barrier to ­investment.

“Given Australia is an importer of capital, we hope the government will reduce barriers to entry for long-term, like-minded institutional investors, who have proven experience in the asset class to create ... jobs and quality housing.”

Mr Perrottet said complimentary federal reforms “would really help boost this sector”. “This would not only increase housing supply and affordability but would help create new jobs and support our economic recovery,” he said.

Victorian Treasurer Tim Pallas said his state had provided the same concessions for build-to-rent investors as NSW. “We continue to work with state and federal counterparts on how to unlock the benefits of the BTR model and ­deliver improvements in housing affordability and construction-sector activity,” he said.

Mr Sukkar last year said the government would be more likely to revisit the MIT tax rate if states were prepared to do “heavy lifting” on property and land tax reform.

Mirvac’s 315-unit block in Sydney’s Olympic Park is the only BTR development of scale in Australia. “We think that people renting for longer is a longer-term trend that is already happening, particularly in global markets. There’s going to be a growing pool of renters over the long term,” said Angela Buckley, Mirvac’s build-to-rent general manager.

“They really range in price from one bedroom at $500 per week, to larger three-bedroom places at about $1100 per week.”

Mirvac is building a similar project in Melbourne, which Ms Buckley said was likely to be finished in late 2022. “We think that a low interest rate is assisting in terms of high levels of inquiry, and generally improving rental affordability,” she said.

Steve Shaw is a new resident at LIV Indigo, the Mirvac development in Olympic Park. “My wife and I were really fed up with living in a place where the landlord didn’t do anything,” he said. “When we had the opportunity to move into something brand new, and pet friendly, we jumped.”

Mr Sukkar declined to comment.

Additional Reporting: Jess Malcolm