16/12/2024
Time to read
3 mins

National Australia Bank (NAB) has voiced concerns over the new tax legislation aimed at foreign investors in Australia’s build-to-rent (BTR) sector, cautioning that while the changes are positive, they fall short of addressing broader challenges. The legislation, which halves the tax rate for foreign investors from 30% to 15%, aligns it with domestic investors but does not resolve key roadblocks such as state taxes, high construction costs, and lengthy planning processes.

Key Points:

  1. NAB’s Stance:

    • NAB CEO Andrew Irvine said the legislation is a step forward but insufficient to boost foreign capital in the BTR sector.
    • He highlighted the need for reforms in local and state taxes, construction cost reduction, and streamlined planning processes to enhance project viability.
       

  2. Macquarie’s Perspective:

    • Macquarie’s Asia-Pacific real estate head, James Kemp, supported the changes, stating they improve Australia’s competitiveness and attract foreign investors familiar with BTR projects globally.
       

  3. Build-to-Rent Sector Challenges:

    • Only 32% of Australia’s 56,600-apartment BTR pipeline has secured funding (Urbis report).
    • Land costs, market uncertainty, and competition with build-to-sell developers remain significant hurdles.
    • BTR accounts for just 0.2% of Australia’s property market, compared to 12% in the US.
       

  4. Broader Opportunities:

    • NAB has committed $6 billion to affordable and specialised rental housing by 2029, with $4.4 billion already allocated.
    • Macquarie sees growth in the "living sector," encompassing various housing models, including retirement and affordable housing.
       

  5. New Kensington Project:

    • The $380 million, 477-unit Kensington BTR project by Local, backed by NAB and Macquarie, includes affordable, social, and disability housing units.
    • Local’s co-CEO, Dan McLennan, emphasised the tax cut’s role in increasing liquidity and confidence for domestic investors, potentially unlocking greater investment in the sector.
       
Significant Quotes:
  • Andrew Irvine (NAB):“We’ve got to get more viability in projects because costs are still too high, planning is still too long and taxes need to be worked on.”
  • James Kemp (Macquarie):“The managed investment trust legislation provides stability and aligns investment to build-to-rent like every other commercial asset class.”
  • Dan McLennan (Local):“Reducing the tax just opens up the investing universe for the asset class, and that’s going to bring a lot more confidence and investment.”
     
Takeaway:

While the tax cuts are a welcome development, Australia’s build-to-rent sector faces structural issues that need addressing to fully unlock its potential. Collaboration between developers, financiers, and governments will be crucial for sustainable growth in this emerging market.

Read more here.