In the 2 June episode of The Property Podcast, Andrew Graham (CEO of Rental Management Australia) spoke with Chris Wiese, the CFO of Rental Management Australia and a build-to-rent expert about all things build-to-rent and the challenges behind delivering the model. 

This article forms part of our Build-to-Rent guide, which looks at the build-to-rent concept in Australia, the benefits for renters and where this development style is headed in future. Check out the full series today.

This interview has been cut down from its original form. Give the full episode a listen here.

You hear the term build-to-rent being promoted to increase rental availability and affordability. Can you give us an explanation of what build-to-rent is?

Chris Wiese: We’re going through an interesting time in the rental market. A lot of solutions are being spoken about, and build-to-rent is definitely one of them. Build-to-rent is specifically-designed and built long-term rental management rental accommodation.

It’s generally built to a high quality and is often owned and managed by institutional investors looking to generate a stable and long-term return. The projects are relatively high density, with about 200-400 apartments, and they usually target a specific demographic.

Where else have you seen build-to-rent work on such a big scale?

Chris Wiese – The United States is probably the best case of multi-family or build-to-rent, which is the other term they use. I think that’s been operating the longest, and it’s quite a well-accepted product over in the states.

Now build-to-rent isn’t all about affordability. Do you want to comment on that?

Chris Wiese – One of the main problems we’ve got in Australia, particularly in WA, is the availability of affordable products. Housing key workers and the like is a real challenge for all of us within the property industry.

People are looking for build-to-rent to solve that problem, but build-to-rent wasn’t developed for that concept. Instead, build-to-rent provided a housing alternative at a higher quality and price point. Whilst traditionally the model hasn’t been trying to hit affordability price points, there will be quite large incentives put in place by government agencies to try and solve this.

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> Build to rent: What is it & how does it work?
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What are the biggest challenges to delivering build-to-rent somewhere like WA?

Chris Wiese – WA’s an interesting market. Our demographic supports the build-to-rent concept. We’ve got quite a young population over here, but the issue we’ve got in WA is the acceptance of unit accommodation.

Some other barriers to entry are the tax regime that’s currently in place, the GST regime that doesn’t really support build-to-rent and some of the MIT tax concessions which haven’t been afforded to the build-to-rent sector. With the vacancy rates and the rental price escalation we’re seeing, I think some of those issues will be overcome.

What do you think the government can be doing to incentivise the build-to-rent market?

Chris Wiese – The Property Council’s done some great work in this space. We recently saw the 50% land tax concession that the state government announced, and I think that’s a great step forward. Whether that’s going to be the tipping point to see many more projects hit the market in the build-to-rent space is yet to be seen.

The biggest issue about the government’s involvement in the build-to-rent industry is the treatment of GST within build-to-rent projects. Not getting GST credits for the construction cost on a project, especially in an environment where we see a rampant escalation in the construction environment, puts a real dampener on some of these projects.

These projects are trading at pretty tight yields, so when you have cost escalations as we see in the market, plus the fact you can’t claim your GST back through the sales process, is a real impetus to the segment.

Location and timing are important in any development. Why is it important in build-to-rent? 

Chris Wiese – Access to amenities in any development is critical. The highest takeup of build-to-rent accommodation is through millennials. Being able to have things that appeal to them means that amenity and location are super important.

If you’re trying to launch a product that isn’t competitive with surrounding single residential houses, for example, it’s going to be harder to fill the building, so it’s key to be close to transport, close to amenities, just like any build of high-density development.

Then it’s also about providing additional benefits within that building, such as good community facilities, co-working spaces, and some of these additional ancillary revenue streams that you can potentially generate from these buildings by offering these additional services to your tenants.

What’s the difference between renting through a private landlord and a build-to-rent community?

Chris Wiese – The key differentiating factor of build-to-rent compared to private rentals is the additional services, the better community facilities and communal space. These apartments are often smaller than regular apartments, but they make up for size through better community facilities. Having high-quality community facilities is probably the primary thing you get out of the build-to-rent concept, as opposed to a private residential concept.

Also, the security and long-term tenure you can get out of these units is a thing. With build-to-rent apartments, you’re in there forever. The building is owned by an institution that wants to generate long-term income and wants a tenant in there for a long time, so it gives people security and safety in their tenure.

You listen to people when they’re renting: They say it’s harder to hang pictures on the wall, they can’t treat it as their own, and the property has more of a transient feel to it. Then, when people buy a house, it’s like, ‘finally, I’ve got something of my own.’ So build-to-rent is trying to crack the divide between those two and give people the security of tenure they want. 

Rent.com.au

Rent.com.au is Australia's largest company dedicated to renters and is owned and operated by ASX-listed Rent.com.au Limited (RNT:ASX). For over 15 years, Rent.com.au has exclusively focused on making renters' lives easier by making it easier to find a property, secure it, move in and pay rent.

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