Build to Rent.
"BUILD-TO-RENT" THE MOST REVOLUTIONARY ASSET CLASS SEEN IN AUSTRALIAN REAL ESTATE FOR DECADES
Set to change forever Australian property investing and housing
BUILD TO RENT SUMMARY
The growing global real estate phenomenon Build to Rent is creating unprecedented worldwide interest with private real estate funds, developers, industry superannuation funds, global Sovereign Funds, and Sovereign Pension Funds all declaring their interest in the new housing asset class.
Build to Rent (BTR) has been a hot topic in global real estate circles for the last few years.
In the UK an increasing number of projects have come to market in recent years so the UK Build to Rent is no longer restricted to industry insiders.
Many tenants are now living in these buildings, and the entire asset class is starting to become the focus of the real estate industry. Build to Rent tenants appear to come in a variety of demographics.
According to The Times, university leavers and young professionals are being joined by older “tactical renters” who choose to rent for a variety of reasons.
Build to Rent may be a growing global phenomenon but it’s still very new in Australia.
The BTR concept was first thrust into the spotlight as a part of the 2019 federal election campaign when Labour proposed taxation reforms for Build to Rent in Australia. Since then, Build to Rent has started to become more reported in mainstream media in Australia.
BTR is opposed to the common build-to-sell method, where a developer builds a residential development and sells the apartments to individuals to either live in or rent out as an investment.
Build to Rent is part of a growing institutionalised housing market and is particularly attractive for institutions, both local, international and sovereign funds that want reliable, steady income as well as exposure to the Australian residential property market. Opportunities for sophisticated private investors (or family office type investors) are more limited, and tend to be restricted to investing in property funds. Investors wanting double-digit annual returns and/or “windfall” type gains would be well advised to try to get in - quickly and early - on the ground floor with private developers looking to enter this market.
Mostly minimum investment amounts in Australia would be around the A$300-500K region, with IRR's around 15% plus.
Build-to-Rent aims to take the best aspects of Single Family Residences and apartments, and upgrades the experience by developing all properties inside a professionally managed community.
They are much more akin to traditional, gated residential neighborhoods with great community amenities and professional management without burdening residents with Rates and Charges, Body Corporate Fees, Land Taxes and repairs. Or servicing mortgage debt.
There are primary shared amenities that every BTR project should have (mail delivery, lounge area, back of house for storage, loading bay for move in and move out, refuse collection facilities) and there are secondary amenities to reflect the brand.
Since BTR buildings are typically institutionally backed and owner-operated, the building has to perform as an asset for both the investors and residents.
This means that facilities such as gyms and swimming pools must be continuously assessed both in terms of what they add to the community and their operational costs.
Fostering a sense of community within a BTR development is essential, as it leads to higher retention rates that contribute positively to the financial performance of the development. When people love where and who they live next to, they stick around!
Experts predict a build-to-rent (BTR) revolution coming to Australia
It’s well-established overseas but, in Australia, it’s a new form of housing and there’s a lot of excitement around it.
BTR means a single owner operating all units in the building, so it’s difficult to see how the individual investor can participate in this business model, other than indirectly through collective investment funds that target this sector.
To invest in Build to Rent property, there are only a limited number of opportunities for individual investors to go down.
Most Build to Rent projects are held for rental income by developers or funds.
Individual investors can make investments in REIT's that specialise in BTR projects, or in large scale property funds.
Wholesale clients and accredited investors* seeking to make investments in the BTR sector can consider making a private placement direct with a developer at an early stage. Minimum investment would normally be around A$300K to $500K.
*Do you qualify as a wholesale investor?
In Australia, there is range of investment products that are only available to wholesale investors. A wholesale investor is generally a more experienced investor in financial products and does not need the regulatory protections that are provided for retail investors. Wholesale investors have a good understanding of the risks involved and the specific characteristics of the fund or financial security they are investing in.
Under the Corporations Act 2001, a person can be considered a wholesale investor if they pass one of the following tests:
Sophisticated Investor Test
If you or entity that makes an investment of at least $500 000 or more in an investment, OR
If investing less than $500,000 MUST have a certificate from a qualified accountant stating the following:
Have a gross income for each of the last two financial years of at least $250,000 or
Have or control gross assets of at least $10 million or more.
Professional Investor Test
To qualify as a wholesale investor under the professional test, you or entity must:
Have and Australian Financial License (ASFL), OR
Have net assets of at least $2.5 million
Experienced Investor Test
To qualify as a wholesale investor through the experienced investor test the AFSL licensee that is making the offer is satisfied on reasonable grounds as described on Section 708(10) and s761GA of the Corporations Act 2001 (Cth.) THAT THE INVESTOR has previous experience in investing in securities that allows them to assess:
the merits of the offer
the value of the securities
the risks involved in accepting the offer
their own information needs
the adequacy of the information given by the person making the offer
Passing any of the above tests will qualify you as a wholesale investor.
Even though you are eligible as a wholesale investor, you need to make sure you do have a complete understanding of all details related to the financial investment product when making investments.
© Copyright Australian Property Syndicates