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BUILD TO RENT DEVELOPMENTS A SOLUTION TO SUPPLY & COST CHALLENGES
Build to Rent (BTR) is an established sector in the USA (estimated at 12% of residential housing) and has over the last decade blossomed in the UK (currently estimated at 5% of residential housing) - It has evolved in Australia over the past five years due to numerous factors, which I will elaborate on, but no one at this early stage is prepared to predict its potential size.
Benni Aroni Client Director - Property Pitcher Partners.
shortage, strong rental growth, and the inability of developers to achieve sufficient returns with their traditional BTS offerings. Those returns have been cruelled by sale price (revenue) limitations, especially in Victoria, construction supply and cost challenges leading to solvency issues, and interest/finance cost escalations. I anticipate each of those factors will improve over the next 12-24 months. My view (but certainly not a universal view) is that the conventional belief among residential developers (not specialist BTR developers) would be that if they had a site that could work for BTR or BTS, they would do a BTS development every time. My rationale for this is that for most sites BTS has higher returns, more advanced planning laws, a much shorter exit timeframe, feasibility models which developers and financiers understand and adopt, and no requirement for operational expertise. When BTR was first mooted in Australia, many saw it as an affordable housing model. In fact, the vast bulk of BTR developments are seeking at least a 20% premium over conventional rentals. The additional amenities and services provided by BTR developers to date, combined with the factors outlined above, have created momentum and initial success. As more product is added and renters struggle with cost-of-living
BTR is expected to be an important and relevant sector especially for large scale developers with expertise and access to requisite capital sources. The question of whether traditional Build to Sell (BTS) developers now engaging in BTR developments will revert to BTS when IRR returns are again 15% plus is a polarising one. When I put this question to Richard Temlett, National Executive Director of Charter Keck Cramer, his response was, “The BTR market will continue to emerge and evolve across Australian cities over the next market cycle up to 2030. Much like occurred with student accommodation, it will take one or more market cycles for BTR to be fully understood by financiers and investors, and also to be fully embraced by the renter population. Once it has reached a critical mass and has market acceptance it will play an important role in housing Australians – much like the role BTR is already playing in more mature housing markets overseas.” What is driving growth of BTR offerings in Australia? BTR offerings in Australia are already helping both developers and renters address current challenges in the housing market and the broader economy. BTR has had a very positive initial growth spurt due to our housing
14 –September / October 2023
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