VIC MARKET OVERVIEW
VICTORIA
VIC Market Overview with Joseph Walton What are the primary obstacles currently faced by developers, and what strategies can be employed to overcome them?
What factors have contributed to the growth of the BTR market in Melbourne, and how does it differ from the traditional rental market? A key point of differentiation is that Build to Rent opportunities offer a long term investment play to the development team responsible for delivering this type of product to market largely due to its ability to offer strong continuity of income and provide a high quality rental offering on long term lease arrangements – which is highly desirable to the local residential rental market given the supply issues of housing for Victorians. Given the current issues associated with housing, BTR has been advocated as a constructive solution to help combat the sheer lack of dwelling supply. Further, government support for BTR will only improve the marketplaces appetite for this style of development. The Victorian government has been attempting to stimulate housing supply through its offering of land tax concessions to BTR developers in order to encourage such developments. However, more recently, following the release of the Federal Budget in May, it was announced that from July 2024, Foreign Investors from managed Investment Trusts will be eligible to reduction to the withholding tax rate attributable BTR developments. This will be on the basis that the development consist of at least 50 apartments; those apartments be made available for rent to the public and retained in a single ownership structure; and the rental provider offer a lease term of no less than three years. This is a change expected to encourage overseas capital into the Australian market for the purpose of delivering BTR product and is expected to assist in satisfying the nation’s appetite for much greater housing supply. From an agency perspective, we can attest to the
The dramatic increase in the cash rate over the past year, the high cost of materials and labour and the significant drop in residential off the plan sales have presented significant obstacles for developers over the course of the past 6 or more months… with the such issues looking as though they will sustain for the duration of this year. Further, with these issues so prevalent in the current marketplace a further challenge is now the introduction of development sites to the market – many of which are permitted. Therefore, with a material increase in supply and an obvious decline in demand, asset values are naturally going through a cycle of correction. Although, in saying that, well located, good quality CBD and city fringe sites appear to be holding value. This is possibly due to the fact that not many high quality sites have been presented to the market in recent times. Potential strategies in the face of such obstacles may be to explore alternative uses for the site that will create an income generating opportunity… a strategy to essentially see one through this phase of the cycle. Alternatively, it may be sensible to look at repositioning opportunities for existing sites which may influence a better development outcome which, ultimately, should lead one to better outcomes financially. Such an approach will open up opportunities for land owners to realise the development of their site or, alternatively, maximise the assets value for the purposes of divestment.
JOSEPH WALTON Director Gorman Allard Shelton
42 – June / July 2023
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