Opportunities in the Victorian Build-to-Rent Sector

Being in the know about the latest trends, challenges and opportunities in the broader real estate sector is what we pride ourselves on at Jones Real Estate.

One of the biggest talking points in the property industry is about housing affordability, which is driving the rapid establishment of the ‘build-to-rent’ sector in Victoria.

Over the past six months, build-to-rent projects have emerged as one of the development sector’s fastest growing asset classes, and the future of the industry could be incredibly bright thanks to its forecasted economic contributions.

But what does build-to-rent mean? Who does it benefit? And how can investors leverage opportunities within the industry? In this article we will look to answer those questions, as well as explore the origins and advantages of this exciting emerging market.

What is build-to-rent and where does it originate from?

In the 1980s, developers in the US created the build-to-rent housing model responding to a shortage of affordable housing. It was intended to create a standalone rental market that was more stable and with longer leases to help people get on the property ladder.

Since then, the build-to-rent concept has grown in popularity throughout the world as a means of supplying attainable and sustainable housing, with the sector launching in the UK in 2012 and in Australia in 2017.

Locally, the build-to-rent model launched during a steady increase in house prices nationally, with some of the first movers in the space including PDG Corporation, Grocon, Nightingale Housing and Assemble Communities. 

Photos supplied by PDG | Development: LIV Munro. Developer: PDG. Builder: Mirvac. Photographer: Lip Hyean Cheong

Forecasted growth of build to rent in the Australian market

According to a 2021 report by the Property Council of Australia and consulting firm Ernst & Young, institutional investment in the local build-to-rent sector could support 17,610 jobs and add $2.9 billion in Gross Domestic Product (GDP) by 2025 – provided significant land taxes and regulations around managed investment trusts are adjusted.  

Interestingly, the Victorian market currently contributes to over 60 per cent of the country’s institutional build-to-rent sector, which spans 9,800 apartments totalling $4.74 billion in development value.

More broadly, the report finds that within a decade the build-to-rent sector could comprise five per cent of the local rental market and inject 175,000 new properties, drive $100 billion in economic value, as well as create and support even more jobs for Australians.

How does the build-to-rent model work and what are its benefits for investors?

Broadly speaking, build-to-rent developments are purpose-built rental properties that are not intended for sale. 

Instead of building to sell, developers retain ownership of each property – managing their up-keep to a high standard – and offer tenant prospects flexible long-term leases that provide both financial and housing security for both parties.

Modern-day build-to-rent developments provide high-quality residences boasting premium amenities like gyms, pools, spas, saunas, yoga studios and gardens, as well as electric vehicle and other ride share services and communal working spaces, which are often supported by hotel-style concierge staff.

Investment benefits and opportunities within the build-to-rent market

From an investment perspective, the Australian build-to-rent sector is an attractive proposition for new and established developers, thanks to its wide acceptance and its recognition as a ‘force for good’. 

Nationally, there is a critical shortage of affordable housing stemming from rising interest rates, increased construction costs in the new-build market, as well as a return of international students and workers to our capital cities.

These contributing factors are fuelling demand for new build-to-rent product across the country, with some savvy investors and developers tailoring projects to different aspects of the real estate market across the high-end, middle-class and affordable/social housing verticals.  

Now, recent planning amendments and rezoning is making build-to-rent projects across inner-metropolitan and CBD areas increasingly achievable, underpinning a flurry of sales activity for inner-metropolitan land parcels, while some investors and developers are snapping up existing residential towers to implement long-term rental models that will drive sustained returns over the lifespan of the investment.

If you would like to learn more about the build-to-rent sector, current and emerging investment opportunities in the space, or would like to discuss a separate property matter, please reach out to us at info@jonesre.com.au.