NSW Government Extends Tax Incentives for Build-to-Rent Properties
The New South Wales (NSW) government has announced an indefinite extension of tax concessions aimed at stimulating the build-to-rent sector in the state. This initiative is designed to address the pressing rental supply challenges in Australia’s highest-priced property market. The announcement coincided with preparations for the upcoming state budget, which will also introduce measures to expedite infrastructure development.
The primary focus of the budget is the continuation of a 50 per cent land tax discount for build-to-rent developments, a concession originally set to expire in 2039 under previous administration policies. This move is expected to provide developers with the consistency needed to accelerate the construction of residential properties.
Impact on Housing Supply
According to Shaun Bond, a finance professor at the University of Queensland, the build-to-rent concept could significantly transform Australia’s housing landscape, particularly as it could alleviate pressure on the housing market. He highlighted a critical issue: the insufficient number of homes being built, exacerbated by disruptions during the COVID-19 pandemic, which impacted supply chains and increased construction costs.
NSW Treasurer Daniel Mookhey stated that the recently introduced measures are intended to create a conducive environment for developers to bring homes to the market faster. "We are ensuring that we build the homes and the essential infrastructure to support them," he noted, emphasising that extending tax incentives for build-to-rent properties will enhance options for renters.
Property Council’s Response
Katie Stevenson, the Property Council of NSW’s executive director, lauded the decision to make the tax exemption for build-to-rent developments permanent, arguing that it offers long-term certainty to investors and developers, which is crucial for meeting the ambitious target of constructing 1.2 million homes by 2029.
To qualify for these tax concessions, properties must be singularly owned and managed, with a minimum of 50 rental units, which aligns with standard practices in countries like the UK and USA where build-to-rent has been successfully implemented.
What Does Build-to-Rent Entail?
In contrast to traditional residential developments where units are sold individually, build-to-rent properties are constructed with a focus on rental occupancy. These developments, often comprising 200 to 300 apartments, are designed to cater specifically to renters and are usually managed professionally. This model not only provides longer lease options but also ensures enhanced security for tenants and more diverse housing choices.
The sector has seen significant investment, with over 8,900 dedicated build-to-rent apartments currently under construction across Australia as of last year, and an additional 20,000 units approved for development in the near future. Other states, such as Victoria, also offer similar 50 per cent land tax discounts to promote build-to-rent housing.
Advantages of Build-to-Rent
One key advantage of the build-to-rent model is its potential to expedite the housing supply. Institutional investors, such as large pension funds, can swiftly mobilise significant capital—often exceeding $100 million—facilitating faster decision-making and project initiation compared to traditional development models, which typically rely on securing pre-sales before construction can commence.
Furthermore, build-to-rent developments often incorporate lifestyle amenities that cater to tenant satisfaction, fostering a nurturing living environment that encourages long-term residency.
Conclusion
With the NSW government’s commitment to extending tax concessions indefinitely, the landscape of rental housing in the state is poised for substantial transformation. The initiatives aimed at boosting the build-to-rent sector not only promise to enhance rental supply but also ensure that housing needs are met in line with growing urban populations. As this model gains traction, it may pave the way for a more diverse and sustainable rental market in Australia.
