The build-to-rent property development model, which is well-established in the United Kingdom and the United States, is gaining traction in Sydney, Australia.
Unlike the traditional build-to-sell approach that dominates the Australian property landscape, build-to-rent – also known as “multi-family housing” – is marketed as a way to provide consistent income for investors as well as security of tenure and better conditions for renters in a growing, ever-tightening real estate rental properties market.
In Sydney, Australia, nearly a third, or 32%, of households rent, a significant increase from only about a quarter of households renting 20 years ago.
According to the latest World Bank data, 86% of Australians now live in cities, and the number of people living in non-standalone housing (ie, townhouses, units, and apartments) increased by more than 345,000 between 2016 and 2021, accounting for about 1% of the population.
According to Proptrack data, apartments will account for more than 6% of all searches on realestate.com.au in 2022, up from around 5% last year. According to Proptrack economist Angus Moore, apartments are mostly being built in cities, while new standalone home plans are more popular in the suburbs.
What Exactly Is Build-To-Rent?
Build-to-rent projects are large-scale residential developments, almost always high-rise apartment buildings, in which all of the rental properties are owned and managed by a single entity and rented out for mid- to long-term periods.
The approach differs from the traditional build-to-sell custom home model, in which a developer constructs an apartment complex and then sells off each individual apartment or unit, which the buyer or tenant they select may end up living in.
In Sydney, the sector is still small and immature, especially when compared to the United Kingdom and the United States, where it has a strong foothold.
Also read the six ways to optimize return from apartments for rent.
Renters’ Advantages And Disadvantages
There are a number of advantages to this new model for tenants. There is more tenure security, flexibility, and choice than a standard lease, as well as access to services, hotel-like amenities, and a “community experience.”
| Pro | Con |
| Greater security of tenure | Higher rents |
| Living in “a community” not just a building | Longer leases |
| Better amenities | Not an established industry in Australia |
| More flexible lease arrangements | Not owning a home |
| Ability to upsize and downsize in the same complex | Usually small apartment |
The Benefits And Drawbacks Of Build-To-Rent For Developers
As with any rental property investment, there are advantages and disadvantages for developers with build-to-rent projects. There are several key advantages.
| Pro | Con |
| Consistent income | The risk of investing in a new concept |
| Potentially higher profits | Potentially higher vacancy rates |
| Capability to cut costs | Rent increases are not being received |
Is Build-To-Rent Synonymous With Affordable Housing?
Yes and no, respectively. While some argue that build-to-rent could aid in the delivery of affordable housing, this is debatable. Everything is dependent on how affordable housing is defined.
One way is through government subsidies, which ensure that some apartments are available at a reduced rate.
“Queensland is a great example, with Mirvac’s Newstead and Fraser’s Fortitude Valley projects delivering a combined 240 (from a total of 750) discounted rent apartments subsidized by the state government.” As a result, approximately 30% of the stock is rented at a reduced rate.
Government Incentives For Build-To-Rent
State governments are implementing various schemes and incentives to promote build-to-rent as a potential solution to the housing affordability crisis.
New South Wales (NSW)
In New South Wales, there is a 50% land tax break for build-to-rent developments until 2040.Rental properties may also be exempt from foreign investor duty surcharges and land tax surcharges.
Victoria
In addition, eligible build-to-rent projects in Victoria are eligible for a 50% land tax discount. Developers of rental properties may also be exempt from the absentee owner surcharge for the same time period. If certain criteria are met, the foreign purchaser’s additional duty may be waived.
Australia, South
The South Australian government will offer a 50% land tax discount for eligible build-to-rent projects beginning next year, but the details are still being worked out.
Queensland
Through rent subsidies, the Queensland government is collaborating with several private build-to-rent developments to provide affordable rental accomodation. Ex-gratia relief is available on an individual basis.
