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The number of build-to-rent properties under construction has “swelled significantly over the past year”, with one city leading the charge.
JLL’s Build-to-Rent (BTR) Australia: Q2 2024 report has revealed that the pipeline of build-to-rent apartments across the nation has almost doubled over the last 18 months, marking a 98 per cent increase since December 2022.
The future pipeline currently consists of 40,631 apartments, consisting of 5,483 operational stock, 11,320 units under construction, 15,028 units for which planning has been approved, and 9,488 which are currently being planned.
Across the country, Victoria remains at the forefront by accounting for 58 per cent of the pipeline – largely within Melbourne – followed by Queensland at 22 per cent, and NSW with 14 per cent.
JLL’s head of residential research in Australia, Leigh Warner, stated that although projects are increasing, Australia could be benefiting from more investment in the BTR sector, but that several factors had stoked market uncertainty and inhibited investment.
The delay in the government’s plan to pass a reduction in withholding tax rates from 30 per cent to 15 per cent for foreign investors in managed investment trusts (MITs) and accelerated depreciation tax allowances for eligible BTR projects had been the biggest challenge to the sector.
Warner highlighted that the “impact of these tax uncertainties” has been exemplified by the significant change occurring in the global capital markets over the past year.
“Higher bond rates have seen a shake out in many markets and the rise in real estate yields has been much larger in many sectors globally than it has been in Australia and this has presented investors with many attractive return options,” he said.
He added that even with the lack of change to the longer-term fundamentals for BTR in Australia, investors have been “diverted to other places and new investment has largely stalled”.
Nonetheless, Warner emphasised that these conditions “won’t last forever and investors still acknowledge that the drivers behind BTR in Australia are strong”.
Despite the slowing of capital financing leading to a reduction in construction commencements, the report noted that most major operators are focusing on the “delivery of projects at hand”, with 21 projects set to complete by the end of 2025 which will add an additional 7,172 apartments.
And with BR stock set to reportedly double by end of 2025, JLL stated that the “the major operators in the sector will still be very busy delivering and leasing these projects”.
Looking forward, JLL’s head of living sectors - capital markets, Jack Bergin, said this new stock will “greatly help in establishing a more transparent capital market for the sector and ultimately help to support further project starts”.
Bergin acknowledged the current “lack of transactional data in the market” has meant that “exit yields have become increasingly difficult to underwrite”.
Nevertheless, he highlighted that the wave of recent and upcoming completions is delivering “much needed rental housing” at scale and enabling investors to benefit from “increased rental and operational benchmarks which will ultimately help enormously in informing future investment in the sector”.
“It is all part of the maturing of the nascent sector here. We saw exactly the same as the sector developed in the UK and we can take some comfort that this process quickly gains momentum once it gets started,” he said.
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