Australia’s emerging build-to-rent sector is starting to look like an attractive asset class and stimulus option, especially now. With Covid the sector benefits by being closer to “shovel ready” than traditional build to sell models. And there’s no need to wait around for pre-sales to kick start a project.
Proponents, including NSW Minister for planning and public spaces Rob Stokes, are keen to see the asset class mature like it has in the UK and the US.
Speaking at the opening of Mirvac’s first build-to-rent development LIV Indigo at Sydney’s Olympic Park on Wednesday, Mr Stokes said build-to-rent can attract direct investment in construction at a time when bank finance is hard to secure.
“It is a critical way to ensure housing is built during difficult financial time,” he said.
Mirvac chief executive office & managing director Susan Lloyd-Hurwitz has been an early advocate for the model, with the Olympic Park project a passion project five years in the making. The developer has no plans to stop there, with three more in the pipeline for Melbourne.
It’s always risky blazing the trail but as she told The Fifth Estate at the launch, it was a fairly fool proof plan because the building could always have been split into strata if need be.
For Ms Lloyd-Hurwitz, built-to-rent fills a gap in the market for people who may not be aiming for home ownership on the basis of personal finances and lifestyle.
“We are living in an era where property ownership is not the overarching goal of all Australians,” she said. “And those who do aspire to home ownership will on average spend more time in the rental market before they can afford to buy their home.”
It doesn’t quite spell the end to the Great Australian Dream of owning a home. The idea is that build-to-rent becomes another choice on the market rather than as an alternative to home ownership.
Mr Stokes said the model was a more “socially just” option for renters, with housing affordability leaving people stuck long-term in substandard housing on unstable leases that could end if the investors decides to sell up or move in themselves.
With this model, renters are treated far better, he said. For example, instead of reserving the prime real estate on the top floor for the people who can afford the penthouse, with build-to-rent, it makes sense to keep the rooftop space communal space for everyone to share.
Barriers to build-to-rent need dismantling
While major developers are leading the way, Mirvac build-to-rent general manager Adam Hirst said the regulatory and investment environment needs to become more favourable for the model to go mainstream.
The NSW government was looking to remove barriers to build-to-rent. Last month it released plans to discount land tax by 50 per cent to developers investing in build-to-rent schemes.
Apartment designed for renters – even pets are allowed
Mirvac spent a lot of time surveying the market before starting work on the LIV Indigo at Sydney Olympic Park.
The company found that build-to-rent was an attractive housing option for a range of renters, including downsizers and 25-40-year-olds looking to save for their own home.
The research also showed that renters are hungry for a bit of personalisation in their homes, with many prospective renters excited by the prospect of painting a feature wall in the colour of their choice.
Other perks typically reserved to the home owner include pet friendliness (there’s even dog washing facilities on site).
The apartments are going slightly above market rates for the area, with rent for a one bedroom apartment starting at $535 compared to the median of $470 for a one bedder in the area.
Andrew Hansen, Mirvac’s build-to-rent national operations manager, said that the savings on energy bills, no bond and all-inclusive offering (appliances included and the like) should see tenants paying less than in a conventional rental, but at this early stage can’t say by how much.
How is it different?
The differences between a normal strata apartment and a purpose-built rental unit are subtle.
In a win for sustainability, it’s largely about durability: apartment floors are kitted out with resilient pavers rather than carpet so there’s no need to replace carpet between tenants, and what you could only describe as grot-resistant tap and sink fittings have been selected.
There’s also extensive shared facilities (perhaps more attractive once/if Covid is no longer a concern), including a large communal kitchen and dining area to host large dinner parties. There’s also a kid’s playroom, home office space and onsite gym.
Onsite building managers are also available around the clock for maintenance concerns.
Mr Hansen said that because the model is so new to Australia, leasing staff are up against a steep learning curve with prospective renters.
But it doesn’t take long for people to get up to speed, and the market research appears to be paying off, with strong interest in the 315 one, two and three-bedroom apartments, Mr Hansen said.
This is a good sign for a company, which revealed on Thursday a 46 per cent decline in pre-tax and net profit in for the 12-month period due to declining property values.
Setting the bar high on sustainability
In build-to-rent the developer sticks around as a long-term owner and manager of a residential property asset, so is more inclined to double down on sustainability because energy savings are recouped through ongoing lifecycle performance of properties.
It also frees ongoing sustainability improvements from the strata organisation, which are notoriously bad at making these kinds of upgrades.
The Clean Energy Finance Corporation wanted to make sure this energy saving opportunity was captured by the asset class from the very beginning, which is why the fund has jumped onboard as cornerstone investor with $63 million in LIV Indigo through Mirvac’s Australian Build-to-Rent Club in 2018.
The funding comes with the commitment that the carbon profile of assets will be reduced by up to 40 per cent compared with minimum standards.
As such, the two BVN-designed buildings have double-glazed windows, LED lighting, energy-efficient appliances, rooftop solar powering the common areas, electric vehicle charging stations (car parking is also an optional extra and there’s a train station nearby) and 100 per cent carbon emission offset energy.
The development is also hooked up to the recycled water network put in for the 2000 Olympic Games, the first of its kind in Australia, which will be used for irrigation and toilet flushing.
Adam Hirst also said that the build-to-rent model meant the developer had more influence over the occupant’s environmental impact compared to a normal residential development. The developer plans to communicate energy and waste saving tips that residents can employ.
Having skin in the game as an institutional landlord is meant to result in better long-term outcomes for renters as the building owner is looking to avoid turnover, so is incentivised to keep tenants happy so that they stay as long as possible.