Without some of the support structure which exists in the US & UK, CBRE head of research Zoltan Moricz said it might be futile to throw them up as useful precedents for a similar evolution here.
“In the US, loan terms, leverage & pricing are more favourable for multifamily than other property types. The multifamily sector benefits from US Government-backed lending programmes with Fannie Mae, Freddie Mac & the Federal Housing Administration being major sources of debt capital for existing assets since the 1990s. Preferential treatment is demonstrated in lower mortgage rates & higher loan:value ratios for multifamily lending compared to other commercial real estate.”
In the UK, permitted development rights introduced in 2013 allowed conversion of office buildings to residential without the need for planning permission, intended to fill vacant office stock.
While use of those rights meant 30% of existing stock in London was in office conversions, institutional investors have been seeking greater scale, reducing use of the rights to 9% of the pipeline.
Tax regime changes have reduced the appeal of smallscale individual residential investment in the UK, and build-to-rent developers have been able to offer lower rent in place of other affordability requirement stipulated in local planning rules.
The new London Plan is expected to make it easier to obtain approval for build-to-rent projects, further reducing reliance on permitted development rights.
In Australia, the build-to-rent sector is at a tax disadvantage to build-to-sell. For build-to-rent, land tax is payable in perpetuity, gst isn’t recoverable and withholding tax is set at the company tax rate for non-resident investors.
Planning barriers include the time it takes to get development approval, and restrictions on minimum size & design.
CBRE modelling showed the tax effects reduced the build-to-rent internal rate of return by 2.4 percentage points, whereas build-to-sell developers didn’t face the same land tax or gst costs, and commercial real estate received gst & withholding tax concessions.
Build-to-rent developers have opted to build on fringe sites with lower unimproved values and are building to scale, averaging over 250 units/site.
CBRE Australia said both federal & state governments were starting to recognise the importance of the sector, but still had substantial tax barriers: “Last September, draft federal legislation was announced that would enable build-to-rent investment via a managed invest trust, allowing institutional investors to take advantage of a withholding tax rate set at half the normal company tax rate.
“However, this lower tax rate of 15% applies to local investors only. Non-residents are allowed to invest in commercial property via a managed investment trust at the 15% tax rate, but are liable for the full tax rate of 30% with build-to-rent investment. This, at least for now, is hindering overseas institutional investment into the sector.”
CBRE, February 2019: Prospects for build-to-rent in NZ
Build-to-rent seen as a developing asset market
US multifamilies long-established with better investor support
Support structures the big question for multifamily growth in NZ
How does this sector stack up?
Attribution: CBRE report & releases.