New build incentives for investors

The rental market in Perth is experiencing near unprecedented challenges due to a lack of available homes to rent and a slowdown in construction industry availability.

To combat the problem, the state government recently announced an initiative to encourage the development of more rental properties. This has the potential to benefit people who are looking for places to live. 

To understand how the incentive will work, you first need to know about building to rent. 

What is build to rent?

Often, developers work on large-scale residential projects with a view to selling the homes they develop to individuals who buy off the plan and move in once the project is complete. This strategy means the development company earns its money back relatively quickly thanks to the profits generated from selling the homes or apartments it builds. 

With a build to rent model, developers take a more long term approach. They remain the owner of the houses or apartments they develop and lease them to tenants. Generally, the developer will have a property management team that helps to look after tenants and maintain the complex once it is built. 

Build-to-rent apartment complexes are popular in Europe but the concept is relatively new in Australia. Some locally based projects include Element 27 in Subiaco and a 21-storey building with close to 200 apartments that is under development in Scarborough. 

One of the benefits of build to rent for tenants is that they tend to be able to rely on longer leases. While private owners often sell after a few years or decide to move into the home themselves, build to rent developers have a focus on attracting and keeping tenants for the long term. 

New tax incentives for build to rent projects

Under a new initiative, build-to-rent projects in WA will be given a 50% land tax exemption under the Land Tax Assessment Amendment (Build-to-Rent) Bill 2023. This comes on the back of the Federal Budget announcing a similar plan in early May. 

Premier Mark McGowan launched the plan, saying “Western Australia’s rental market is under pressure at the moment and my government is committed to doing what it can to help build its capacity.”

To qualify, build-to-rent developments must contain at least 40 self-contained dwellings that can be leased by tenants, and must be owned by the same owner or group of owners. There must be a single management entity, and the project needs to be completed between 12th May 2022 and 1st July 2032.

The Real Estate Institute of WA has backed the move, saying that build to rent is an innovative, contemporary solution that will get more supply into the market, and this incentive will reduce costs and encourage much-needed development in this space.  

What does this mean for you as an investor?

Build to rent is gaining momentum in the eastern states and will probably become more common in Perth over time. These projects tend to be on a very large scale and require the financial commitment as well as industry know-how to see the project through to completion, so they benefit developers more than individual investors. 

While it will take several years for the build to rent initiative to make a significant difference to the rental landscape, the pendulum may swing back in favour of tenants in the future, especially if they have the option of choosing a brand-new apartment that has been built to rent.

At this stage in time, with vacancy low and rental returns reasonably high, it’s a good idea to work with your property manager to ensure your investment stays in good condition and is appealing to tenants. This way, you’ll have a better chance of the property helping you to achieve your goals as the market begins to change in the future.