After the initial enthusiasm, interest seems to be waning in Australia’s build-to-rent sector with developers facing the prospect of diminished returns in comparison with build-to-sell projects.
Build-to-rent projects, which could be an affordable housing solution, are impacted by three taxes that lower returns by as much as 25 percent, according to new data released by CBRE.
The three taxes affecting the growth of the build-to-rent sector are land tax, goods and services tax (GST), and withholding tax. Compared with the internal rate of return of 12-14 percent for build-to-sell projects, build-to-rent projects can achieve only about 7.43 per cent. The current tax regime is punitive on the build-to-rent segment, putting off developers from initiating new projects in this real estate sector.
Though the federal government is planning to allow institutional investors to invest in build-to-rent residential projects through managed investment trusts, non-resident investors will still have to pay the standard 30 percent company tax rate, which reduces their internal rate of return by another 54 basis points.