The NSW government has halved land tax payments for build-to-rent development projects in order to spur construction and change the way people view renting.
In what could be a turning point for the fledgling sector, the state government will for the next 20 years issue a 50 per cent discount on land tax to developers investing in build-to-rent schemes.
Until now, embedded market and legislative barriers across NSW have created impediments for developers in Sydney, with a complicated tax regime and high entry cost discouraging investment.
NSW treasurer Dominic Perrottet said the legislation would provide more housing options, greater certainty for renters, boost construction and support jobs during the Covid-19 recovery.
“Build-to-rent is popular overseas, but still in its infancy in Australia and we want to remove barriers and allow this segment of the market to grow,” Perrottet said.
“Renters benefit through greater choice, and because the focus is placed on them—rather than just geared towards property owners—it has an added benefit of encouraging better quality rental properties and much longer-term leases.”
To be eligible for the land tax discount, a build-to-rent development in metropolitan areas must have at least 50 units, with a different threshold for regional areas still to be considered.
Construction must have started on or after 1 July and the projects need to provide purpose-built rental units, be managed under unified single ownership and include options for longer leases.
NSW chief executive of the Urban Development Institute of Australia, Steve Mann, said the reform would now turbocharge the housing sector and help combat Sydney’s affordability challenges—where increasing proportions of the population are likely to be life-long renters.
“[The land tax] discount will assist with the viability build-to-rent projects which will help deliver large volumes of affordable housing, like we see in the UK and US, where only 15 per cent of the build-to-rent product is in the premium market.
“Developers and building owners will also benefit through effectively diversifying their portfolios to provide non-cyclical alternatives,” Mann said.
Policy makers will take heart from the successful rollout of build-to-rent policies and projects in established markets such as the US and North America, where exponential growth across the last five years has been evident.
The UK now has almost 30,000 complete build-to-rent dwellings and another 110,000 under construction or in planning.
Speaking at The Urban Developer’s co-living and build-to-rent vSummit last week, Greystar managing director Chris Key said recent positive dialogue across state and federal levels of government had led to this decision.
“[The land tax] has been a major handbrake in terms of growth across the sector,” Key said.
“[Changes in land tax] will mark a genuine opportunity to foster growth and assist with the Covid-recovery by generating both jobs and tax revenue.”
Greystar, whose parent company is the biggest operator of apartments in the US, recently bought two adjoining sites in Melbourne's South Yarra to build a mixed-use precinct with more than 500 build-to-rent apartments to be completed in 2023.
According to recent report from CBRE, Australia ranks among the top five markets around the world with the best build-to-rent potential when all the investment fundamentals were taken into account.
CBRE estimates that there are currently 12,000 build-to-rent units at varying stages of completion across Australia.
Popularity within the sector has surged in recent months with more than 30 major build-to-rent projects with an average size of 365 apartments confirmed and an additional pipeline estimated at more than 10,000 units currently in due diligence.
In Sydney, eight projects have been announced so far, including the recently completed Pavilions by Mirvac at Sydney Olympic Park.