The Rise of Build to Rent Apartments: How to Invest in This Growing Sector on the ASX
In recent years, the Build to Rent (BTR) sector has garnered significant attention from investors, and the reality is finally catching up with the hype. These apartments are specifically constructed for rental purposes and are typically owned by institutional landlords or investment funds. While this model is well-established in countries like the United States, where it constitutes approximately 12% of housing stock, Australia has lagged behind, with only 0.4% of completed housing stock classified as Build to Rent as of last year.
Historically, major players like Mirvac (ASX:MGR) faced challenges in launching BTR projects. However, recent developments indicate a positive shift, despite 2024 presenting some challenges. Currently, Australia has a limited number of completed BTR projects, with Mirvac's developments at Sydney's Olympic Park serving as a notable example. According to Oxford Economics, 6,543 rental units were completed in 2023, with an additional 5,290 expected in 2024. While this marks a retreat compared to previous years, it still represents nearly triple the levels seen in 2019-20. Projections suggest that completions may exceed 7,200 in 2025 and reach 8,000 by 2027, with 14,000 units currently under construction.
The outlook for the BTR sector is optimistic, driven by falling interest rates, easing supply chain issues, and government incentives aimed at boosting investment. Notably, the federal government plans to halve the 30% withholding tax on managed trusts that hold BTR apartments, provided that at least 10% of the dwellings are designated as ‘affordable tenancies.’
A pressing issue that looms over the sector is the rental shortage in major cities. The government estimates that Australia will require 1.2 million new dwellings by 2028 to accommodate the influx of new migrants. This underscores the urgency for action in the BTR space.
Investing in large-scale BTR apartments can yield substantial returns, as renters are often willing to pay a premium for well-equipped units featuring amenities like pools, gyms, and communal spaces. The reputation of established companies also plays a significant role; tenants often prefer renting from recognized brands rather than anonymous landlords.
Mirvac stands out as the leading player in the BTR market, boasting 1,279 operational apartments across three properties as of June 30, 2024. These include one at Sydney's Olympic Park and two in Melbourne, strategically located near the Queen Victoria Markets and at the intersection of Spencer and Flinders Streets. Collectively, these properties, branded as ‘LIV,’ house over 1,100 residents and maintain a 94% occupancy rate. Mirvac has conveyed a positive sector outlook, supported by limited supply and tight rental markets in capital cities along the East Coast.
Other notable players in the BTR landscape include Stockland (ASX:SGR), which is developing its inaugural project as part of the Triniti development in North Ryde, Sydney, and Lendlease (ASX:LLC), which plans to construct a 37-storey, 443-unit BTR tower at Brisbane Showgrounds. Additionally, Cromwell (ASX:CMW) operates as an investor rather than a builder, offering exposure to its funds for direct investment in the BTR sector.
As the Build to Rent sector continues to evolve, it is poised to emerge as a viable solution to Australia's housing crisis, presenting profitable opportunities for companies involved in its development. With forthcoming incentives further supporting growth, investors can expect to hear much more about this promising sector in the years to come.