The New South Wales (NSW) government has recently announced an indefinite extension of a crucial tax concession aimed at stimulating the build-to-rent (BTR) property sector, a strategic move intended to alleviate the housing shortage in Australia’s most expensive property market. This initiative comes ahead of the state’s upcoming budget and is accompanied by regulatory measures designed to expedite infrastructure development.
The tax incentive involves a 50% land tax discount for BTR developments, a concession that was previously set to expire in 2039. This extension is seen as pivotal for enhancing rental supply, as highlighted by University of Queensland’s Professor of Finance, Shaun Bond, who believes that the BTR model could significantly influence Australia’s housing landscape.
Demand for More Homes
Bond articulated the pressing need for increased residential construction, a crisis that intensified during the COVID-19 pandemic due to disrupted supply chains and escalating material costs. Many building companies were adversely impacted, further complicating the housing situation. NSW Treasurer Daniel Mookhey underscored that the newly announced measures will provide developers greater certainty and support the timely construction of essential housing and infrastructure.
"The extension of tax incentives for build-to-rent will facilitate easier development processes, subsequently expanding renters’ options," Mookhey added.
Targeting the Housing Goal
The Property Council of NSW, represented by executive director Katie Stevenson, supports these measures, particularly given the state’s ambitious target of constructing 1.2 million homes by 2029. She noted that making the BTR exemption permanent brings long-term assurance for investors and developers, which is vital for enhancing the quality and quantity of rental housing in NSW.
To qualify for the tax concession, properties must be under the ownership and management of a single entity and must feature at least 50 rental dwellings. In Australia, BTR is an emerging concept, albeit well-established in countries like the UK and the US. Unlike traditional residential apartment structures, which involve selling individual units, BTR units are designed specifically for long-term leasing and managed as a collective.
Typically, these developments feature larger complexes, often comprising hundreds of units, that attract tenants with extended lease options, greater security, and variety in rental choices.
Rising Investment in Build-to-Rent
As of late 2022, Australia has seen substantial investments in the BTR sector, with over 8,900 dedicated BTR apartments already in various stages of construction and an additional 20,000 units greenlit for development in the next five years. Other Australian jurisdictions, such as Victoria, have also implemented similar 50% land tax incentives to encourage BTR projects.
Bond further remarked on the advantages of the BTR model, notably its capacity to accelerate housing supply. Typically funded by large pension funds or institutional investors, developers involved in BTR can quickly mobilise significant capital to initiate projects, signalling a shift away from the traditional model reliant on pre-sales before construction.
Tenants in BTR properties benefit from a focus on lifestyle amenities, as these developments aim to enhance tenant satisfaction and retention.
In summary, the NSW government’s indefinite extension of the 50% land tax discount on build-to-rent developments is a proactive measure to boost affordable rental options. It reflects an understanding of the housing supply challenges facing the state and aims to attract investment, ensuring that both developers and renters can enjoy substantial benefits moving forward.
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