Build-to-rent pulls a 20pc premium on traditional rental

Build-to-rent apartments attract a 20 per cent premium in rental income over build-to-sell units of the same size, even before extra charges such as car parking and storage are factored in, according to a new third-party report.

A Charter Keck Cramer analysis of advertised rents at Mirvac’s LIV Indigo BTR development in Sydney Olympic Park and rents for nearby private rental apartments shows the median one-bedroom, one-bathroom apartment rent is 19 per cent higher than an equivalent build-to-sell unit, while the difference was 27 per cent for a two-bed unit.

The relatively small study gives independent confirmation of claims Mirvac has made about a 15-20 per cent premium for its build-to-rent apartment model. In February, the company said LIV Indigo was 93 per cent leased and having shown the product worked, the company would seek third-party capital to co-invest in BTR projects.

Charter Keck Cramer did not make any calculation about the boost to profitability of BTR assets from a possible reduction in the 30 per cent withholding tax levied on foreign investment in the fast-growing sector – an impost some developer groups have lobbied to remove – but which last week’s federal budget left unchanged.

Housing affordability shows no sign so far of becoming as big an issue in the May 21 federal election as it was during the last election in 2019, when the opposition Labor Party was campaigning to reform both negative gearing and the capital gains tax deductions on property investment.

Neither the governing Coalition nor Labor – which in 2019 promised to halve the tax rate – has set out its policy on the issue which has divided lobby groups.

The Housing Industry Association, which represents large volume builders, argues that to reduce the discount would put institutions at an advantage over mum-and-dad investors.

Private polling for the HIA found that 54 per cent of respondents who were aware of the build-to-rent sector – just 28 per cent of the 1500 people surveyed in total – supported tax concessions on not-for-profit housing. The proportion backing it for for-profit development was lower, at 34 per cent.

This puts the HIA at odds with the Property Council of Australia, which argues the sector should be a level playing field for all participants.

“Currently build-to-rent housing pays double the withholding tax as office buildings, shopping centres and industrial parks,” said Ken Morrison, the council’s chief executive.

“It makes no sense to discriminate against build-to-rent housing in these tax settings.”

Charter Keck associate director Richard Temlett said the analysis used only advertised rents and did not consider whether any incentives were in play or not, and further cautioned that any premium for BTR rental depended on a range of factors such as brand, location and amenity.

But the exclusion of rental revenue such as the extra services a BTR landlord could charge for did mean the gap with privately owned rental units could be even higher.

“This suggests the premium currently being achieved is likely to be even higher than the figures indicate,” Mr Temlett said.

The study compared 22 build-to-rent and 30 build-to-sell one-bedroom, one-bathroom apartments that were advertised for rent and had the same disclosed internal floor area. It also compared 18 build-to-rent and 19 build-to-sell two-bedroom, two-bathroom apartments.

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