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While already well-established in the United Kingdom and United States, the build-to-rent property development model is in its infancy in Western Australia.

But the concept is expected to gain traction following the announcement of state and federal tax sweeteners for the private sector to commit to new projects.

Industry lobby groups say build to rent is a proven model that can deliver quality projects, at scale, across a range of price points. CREDIT:BLOOMBERG

Limnios Property Group managing director James Liminos said while embracing the model could help Perth’s dire rental shortage, a deeper analysis revealed myriad potential downsides.

“Build-to-rent” projects are large-scale residential developments, often high-rise blocks of apartments, where all the properties are owned and managed by a single entity to be rented out over mid to long-term periods.

Liminos, a former City of Perth councillor, said the rental crisis plaguing WA should not be used to allow unaccountable overseas companies unfettered access to our housing market.

“My real concern about the concept is the entry into the Australian property market of large multinational corporations who will start to impose overseas housing models on the local housing market,” he said.

“These large corporations need economies of scale to make their build to rent model work so they can deliver the highest capital returns to their shareholders.

James Liminos fears the model could see large multi-rent complexes turn into ghettos.

“That means the development of large housing developments consisting of several hundred homes in one location.

“Careful consideration must be given to ensure that build-to-rent does not result in a long-term nightmare where we construct large multi-rent complexes that, over time, turn into ghettos.”

Recently announced state and federal government tax concessions for the private sector to build-to-rent were widely praised by industry lobbyists. In WA, there will be a 50 per cent land tax exemption over 20 years for eligible projects.

It comes on top of tax concessions announced in the federal budget that will increase the tax rate for the annual capital works tax deduction (depreciation) to 4 per cent for build-to-rent development. The final withholding tax rate will also be reduced from 30 per cent to 15 per cent, on eligible fund payments from managed investment trust investments from July 1, 2024.

The Urban Development Institute of WA has been working with government for several years to identify opportunities to deliver more affordable housing stock on the ground. Build-to-rent was a significant focus.

Chief executive Tanya Steinbeck said there was a dire need for a substantial increase in rental stock across the country, and build-to-rent was a proven model that could deliver quality projects, at scale, across a range of price points.

“Institutional investors play a critical role in funding the delivery of housing in volumes that would take smaller developers or investors years or decades to deliver,” she said.

Steinbeck said the concept was not new, and the state government is already the largest owner of build-to-rent with more than 40,000 social homes.

She said owners of such projects must comply with the relevant tenancy act legislation in each jurisdiction, which provided regulatory requirements to protect the interests of both landlords and tenants.

But Liminos said multinational corporations had a poor track record in the global rental market.

“The main issue with these large housing developments being owned and operated by these international corporations is how they are maintained and the quality and cost of services provided to the tenants over the longer term,” he said.

“The UN’s housing advisor recently accused a multinational private equity company now heavily involved in build-to-rent of massively inflating rents and imposing an array of heavy fees and charges for simple repairs … having ‘devastating consequences’ for many of their tenants in countries around the world.

“In addition, there have been widespread complaints internationally of rental complexes owned and managed by major multinational companies being poorly managed and becoming dilapidated over a number of years.”

But Property Council WA executive director Sandra Brewer said build-to-rent offered an alternative to the typical mum-and-dad-owned rental property and benefits included a typically higher standard of amenity and services.

“Safe, secure, long-term tenancies are desired by plenty of people who prefer not to buy a house, including those who may only live in WA for a few years, or people who prefer to invest in their business,” she said.

A state government spokesman said the model would be a growing part of the future housing mix and the new legislation brought WA in line with NSW and Victoria, where similar tax relief for build-to-rent developments was available.

To qualify for the exemption a development must contain at least 40 self-contained dwellings available for residential leases, be owned by the same owner or group of owners, and be managed by the same management entity.

Liminos said Australia should consider other options in the build-to-rent space to resolve our rental crisis.

“Rather than giving tax incentives to large overseas multinational companies to enter the rental market in Australia to construct massive rental complexes, we should consider giving additional tax incentives to local Australian companies with the focus on them providing lower density rental developments of 50 to 60 housing units with innovative housing designs,” he said.

“As Australian-based businesses, the chain of accountability for their tenants will be much shorter and tighter compared to a New York-based company that manages a rental property in Perth.”

Article by Sarah Brookes of WAtoday published on 24 May 2023