Build to Rent Tax Incentives
Today, almost every Australian is feeling the pinch when it comes to housing affordability. Higher interest rates and general inflation felt across the country means that those wanting to live in urban centers may struggle with home ownership goals.
Constructing build-to-rent (BTR) or multifamily properties is one of the solutions to ease housing issues especially in high-demand areas, as these homes are built and designed for long-term residential rental accommodation.
Build to rent is one of the fastest growing commercial real estate sectors, but there are barriers to investing in multifamily homes. You’ll incur higher withholding tax rates payable in managed investment trusts, you don’t receive tax credits for GST purposes, adding 10% of acquisition, construction, and operating costs. Not to mention the higher stamp duty and land tax fees for foreign investors.
But good news for investors: the government is easing what is historically known as stringent tax treatment for this type of investment.
What are the proposed build to rent tax reforms?
There are two new tax provisions in the proposed reform. These include:
- Increasing the annual depreciation rate from 2.5% to 4% per year for new rent to build projects (after May 9, 2023); and
- Lowering the withholding tax rate from Managed Investment Trust (MIT) to foreign residents on income – from 30% to 15% for these projects after July 1, 2024.
Rental vacancy in Australia is nearing record lows, with only about 1.1% of all rentals all over the country being available while the demand is growing strong. These proposed changes are put in place to boost investment from global and domestic capital, much needed to tackle the housing supply shortage.
Are build-to-rent properties viable for investors?
While the concept of build-to-rent is relatively new in the Australian market, it has gained attention and interest from investors and developers in recent years. Surveys point that BTR or multifamily dwellings is still among the most sought after global asset class.
Australia is projecting a pipeline of nearly 27,000 apartments, including those in the pre-application stage. BTR has been shown to be resilient in times of inflation and structural trends in the housing market.
Proposed tax incentives show that build to rent is here to make a mark. It has the potential to be the most credible model that can improve housing affordability and facilitate security for tenants. Even though national rental vacancy rates are at the lowest now, the country is moving towards delivering more diverse housing options to alleviate housing scarcity across major capital cities.
This is why the government is pushing for these tax incentives so that build to rent developers can materially benefit in terms of cash flow and net present value.
Property investing may seem daunting now, with inflation and growing cash rates. But tax incentives for build to rent projects is something we can look forward to, to make market conditions more positive overall. If you’re interested in exploring BTR, seek advice from our investment specialists. You can talk to us any time – book an appointment today.
