Allens real estate specialist Tim Chislett sees 2022 as the year build-to-rent gained real momentum in Australia.
For years, we've been talking about how build-to-rent (BTR) - large-scale, purpose-built rental housing held by a single owner and professionally managed - will change the way people live, and transform the real estate investment landscape in Australia. In 2022, the rubber hit the road. We've seen many billions of dollars of capital invested in BTR in Australia this year. That's an extraordinary amount of money for a sector that didn't exist in Australia three years ago.
This year has also seen several of Australia's first BTR towers begin operation, including Mirvac's LIV Indigo in Sydney and LIV Munro in Melbourne. In 2023 we'll see the number of developments take off, with a stream of completed projects set to hit the market and tenants getting their first BTR experience.
Australian governments are now realising the benefits of BTR for investors and tenants alike, and the key role it can play in fixing Australia's housing crisis. When the federal government unveiled the Housing Accord as its flagship budget announcement, it felt like a defining moment for BTR. With institutional investors explicitly called out as part of the strategy - which will see the construction of one million new well-located homes over five years from 2024 - it's clear that BTR will play a pivotal role in delivering that supply.
As the sector has evolved, we've been helping Australia's leading BTR players navigate regulation that doesn't neatly fit what is effectively a new industry. As a lawyer, it's been fascinating to face completely new challenges with our clients, working with teams across almost all of the firm's practice areas to chart a course. We've found that in many cases the law is no longer fit for purpose and we are central to helping make the changes that are needed.
When I started out in my career, BTR didn't exist in Australia. It's now one of Australia's most attractive asset classes. By the end of my career, I'm sure that BTR will be a key pillar of our real estate market in Australia and future generations won't believe there was ever a time when it didn't exist.
Fund through arrangements will continue to dominate
As we predicted in our 2019 BTR paper, fund through arrangements have become a dominant trend in the BTR sector. We expect this will continue in 2023, as private developers with quality sites develop BTR projects on a fund through basis for the long-term BTR investors.
The MIT conundrum may finally be solved
The prevailing issue throughout BTR's short history in Australia has been that income from residential real estate is currently denied the concessional 15 per cent rate applicable to income from most other real estate asset classes for eligible foreign investors in Managed Investment Trusts (MITs). With a Federal Labor Government coming to power during 2022, the industry will be watching to see if 2023 will finally be the year BTR is put on a level playing field with other real estate asset classes.
Developers will face hurdles over more mixed use precincts
We expect an increasing number of BTR projects will form part of mixed-use precincts. Our experience is that complex issues regarding strata titling, shared services and the use of common spaces will need to be carefully negotiated.