The recent announcement in the federal budget regarding the reduction in the Managed Investment Trust (MIT) tax for Build-to-Rent (BTR) from 30% to 15% has brought a ray of hope for the constrained residential sector in Western Australia (WA) and specifically in Perth.
This positive development, coupled with the Land Tax Assessment Amendment (Build-to-Rent) Bill introduced last week, is expected to be a game changer for the housing market in the region.
Under the newly proposed bill, there will be a 50% land tax exemption for up to 20 years. This exemption will apply to all new BTR developments that have a minimum of 40 dwellings available for residential lease, owned by the same owner or group of owners, and managed by the same management entity. Such measures create a conducive environment for investors and developers to venture into the build-to-rent sector, which was previously hindered by unfavourable tax policies.
Nick Charlton, Cushman & Wakefield’s Director, Joint Head of Capital Markets, WA said for years, we have witnessed potential BTR investors expressing their interest in the Western Australian market.
“However, the feasibility of their investment plans was often compromised due to the taxation regime imposed on new build-to-rent schemes. The reduction in MIT tax, along with the land tax exemption, addresses this challenge directly and provides a favourable financial landscape for BTR projects to flourish”.
Mr Charlton believes that one of the key benefits of promoting build-to-rent is its potential to alleviate the stress levels in the rental sector. “With vacancy rates in the rental market reaching an alarmingly low 0.7% as of April 2023 (according to REIWA research), and these rates projected to persist, build-to-rent developments will play a crucial role in meeting a proportion of housing demand and providing stable, long-term rental options for residents.
“In particular, sites offering between 200-400 apartments within 500 meters of a train station are in high demand among BTR investors. The proximity to public transportation hubs not only enhances the accessibility and convenience for residents but also aligns with sustainable urban development goals” he said.
Ben Younger, Cushman & Wakefield’s Director, Joint Head of Capital Markets, WA said furthermore, the anticipated increase in migration into Western Australia indicates that the demand for housing will remain strong in the foreseeable future. By embracing the build-to-rent model, the region can better address this surge in housing needs and accommodate the growing population effectively.
“It is important to note that the success of the BTR sector is contingent upon careful planning, collaboration, and ongoing government support. Regulatory frameworks should be designed to facilitate the development of high-quality, well-managed BTR projects that prioritise the needs of tenants and provide safe and affordable housing options.
“The recent announcements in the federal budget and the Land Tax Assessment Amendment Bill have laid a solid foundation for the growth of build-to-rent in Western Australia. By encouraging investment in this sector, the government is taking a proactive approach to address the challenges faced by the stressed rental market and contribute to the overall well-being of residents.
“With the rental sector forecast to face significant pressure due to limited supply and high demand, the introduction of favourable taxation policies for build-to-rent developments marks a significant milestone. The future looks promising for the build-to-rent sector in Western Australia, with the potential to reshape the residential landscape and provide a sustainable long-term solution to the housing shortage” he said.