Build-To-Rent Tax Slash
Is Build to rent the way of the future for Australian Development?
In recent years, build to rent has emerged as a new asset class in Australia and is growing momentum as developers are benefiting from robust income and strong rental growth. The BTR development class doesn’t require pre-sales or pre-leasing activity to ensure viability, significantly reducing development timeframes, however the asset class has received resistance due to land tax and GST have been impacting the viability of potential BTR projects.
Coming of the back of the pandemic conditions, development completions are at an all-time low, with Australia’s National Housing Finance and Investment Corporation predicting a shortfall of 163,400 dwellings by 2032. Low supply levels coupled with inflation has resulted in Australia entering a housing & affordability crisis. It is critical that supply of housing stock is pushed into the pipeline to combat the affordability crises.
Currently, around a third of Australians currently rent – and this figure continues to climb as the deposit hurdle to home ownership gets higher each year.
In an effort to help combat the housing & affordability crises the Labour, Albanese government has announced significant tax cuts for the BTR asset class. Until now, BTR has been competing with, and trailing behind, other property asset classes that have enjoyed the 15% rate, such as office, logistics, hotel and student accommodation assets.
The announcement proposes:
- The withholding tax rate for eligible fund payments from managed investment trusts to foreign residents will be reduced from 30% to 15% from 1 July 2024
- the rate for the capital works deduction for eligible build-to-rent properties will increase from 2.5% to 4% per year for properties that commence construction after 9 May 2023.
Additionally, within NSW if the following key criteria are met, BTR assets may be eligible for a 50% reduction in land tax until 2040
- Construction must commence on or after 1 July 2020
- Occupational certificate must be issued
- Comprise of at least 50 self-contained dwellings
- dwellings must be made available to the general public without restriction
- the property must be held in a unified ownership structure for 15 years
- dwellings must be managed by a single management entity
- each tenancy must be subject to a residential tenancy agreement
*Noting there are difference criteria for different states across Australia*
The proposed tax cuts will breath new life into the asset class and strengthen the future supply of housing affordability, removing the current hesitation. It is anticipated the tax relief could inject 150,000 apartments into the market over 10 years, potentially providing a viable solution for our housing supply crisis
At Adam Charles, we are the only agency to specialise in selling development sites AND build to rent management agency across Metropolitan Sydney and have a thorough understanding of what this announcement could mean for your property! If you own a development site suitable for over 50 apartments, feel free to get in touch for a confidential discussion.