Build-to-rent will be a game changer for the Australian housing market as an estimated $300 billion worth of residential assets may be owned by institutional investors within the next couple of decades if the multifamily sector evolves in the same vein as the US, according to a CBRE report.
Multifamily developments are gaining traction in Australia and the major residential investors Lendlease, Mirvac and Stockland are all looking to offer the product.
While it will not be a panacea to housing affordability, the developers believe it will help first home buyers and investors with limited funds to enter the market.
CBRE’s head of research for Australia Stephen McNabb said the multifamily sector represented about 15 per cent of properties with five or more units in the US, a position obtained after 25 years of growth.
In total, the sector accounts for 20 per cent to 25 per cent of the $US2 trillion in institutional property investment in the US, ranking it as the second largest investor allocation after office property.
“Factoring in that 35 per cent of Australia’s population rent, if the market here evolved to the level of the US, up to 5 per cent of the country’s dwelling stock by value could be institutionally owned in several decades,” Mr McNabb said.
“In today’s dollars, that represents about $300 billion worth of residential assets or about 300,000 apartments.”
Lendlease chief executive Steve McCann said at the full year results that, while imposition of GST in Australia made it uncompetitive for developers compared with building for resale, the build-to-rent sector was emerging as a new asset class.
“The units-to-rent sector is one we are entering as it is well established in the US and London,” Mr McCann said. “It provides a potential new asset class in our investment segment.
“In Australia, it is a possible product for us, but there are tax issues that make it a challenge. The sector needs government support to make it viable.”
Knight Frank’s director of research and consulting in Australia Paul Savitz has predicted that, during the next five years, it is expected that close to 40,000 purpose-built student accommodation (PBSA) beds across Australia will be developed, as both domestic and global institutions awaken to the potential of this maturing investment class.
“For those ineligible for affordable housing, or for those unable or unwilling to enter the owner-occupier market, there has been a reliance on small-scale, largely unregulated ‘amateur mum and dad landlords’ who either rent out their own former homes or accumulated portfolios of properties,” Mr Savitz said.
“The professional, large-scale institutions now focusing on this new investment asset class are looking to build and construct, keeping these dwellings for the long term, and harvesting the income from rents, in the same way as the new wave of PBSA institutions are operating.”
Mr McNabb said while build-to-rent would take pressure off existing housing stock, it would not, by itself, be a panacea for housing affordability.
“There will, however, be economic benefits in reducing household debt and the potential to transform financing of the sector away from traditional intermediated finance for development and end-product purchasers,” Mr McNabb said.
“The federal government would need to consider how zoning and tax changes can provide certainty to the asset class.”
Mirvac has already forged a path with the engagement of UBS to launch a build-to-rent apartment vehicle with a potential value of $750 million.
Susan Lloyd-Hurwitz, chief executive of Mirvac, said she saw an opportunity for an institutional rental market to operate in Australia and “we are currently preparing to invite investors to join us in the opportunity”.
“Build-to-rent can provide secure, quality, long-term and professionally-managed rental accommodation in key urban locations providing people with this choice and security,” Ms Lloyd-Hurwitz said.
Mirvac will create a fund for its “Liv by Mirvac” platform, which will start with a complex in Sydney Olympic Park then expand with demand.
Funding will be another key consideration, according to Simon Cowley of CBRE’s debt and structured finance team.
“In the early phases, the capital stack will be formed mainly through equity rather than debt,” Mr Cowley said.
“It will entail institutional investment via either the forward-funding or forward-commitment route, via joint ventures with developers and through partnering with asset managers with expertise in this sector.”
Frank Lowy’s Westfield is also teaming up with apartment operator Greystar to launch its first residential tower in San Diego in the US as it enters the build-to-rent apartment sector.
Westfield has indicated it will pursue build-to-rent schemes in both US and Britain, and the project at its Westfield UTC mall in San Diego is the first to launch. Greystar, based in South Carolina, is the largest apartment operator globally and runs more than 415,000 units in about 140 cities.