Why the Build-to-Rent Model Works For Renters

February 20, 2024
build to rent

Build to rent, also called BTR or B2R, has been around for a few years, but in the large scope, it’s still a fairly new idea. 

If you’ve ever seen the term “Build to Rent” mentioned in the media and wondered, “What is it and how does it work?” then you’re not alone. This article is for you. 

What exactly is “Build-To-Rent”? How does it work? How does it benefit renters? Let’s explore the answers you seek.

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What Is Build To Rent?

build to rent

Build-to-rent is a housing structure where developers build several units in a complex specifically for long-term rental purposes.

Renters in Australia now have more housing options thanks to the rise of the this industry, which aims to meet the growing demand for well-designed and well-built rental properties. 

Long-term institutional investors often hold ownership of Build to Rent developments, while a building manager handles the day-to-day processes of the project.

The good news with BTR projects is that renters benefit from the freedom to move around while having the security of a mortgage.

How Does Build To Rent Work?

Basically, instead of building for the sake of resale, build-to-rent homes are meant to be long-term rental properties with a possibility of discounted rent for tenants. 

These homes appeal to the renter demographic by providing affordable housing. BTR projects are designed to maximise inhabitants’ satisfaction and liveability, as the developer keeps ownership of all the flats and offers them for longer-term rentals.

These projects in Australia are being developed by both smaller private investors and larger publicly traded companies, with the brand of the complexes expected to become a selling factor. 

Compared to a typical apartment tower, where a separate person owns each unit, living in a build-to-rent is a unique experience. 

The head of growth from Melbourne Real Estate, Stephen Fitzsimon, who has several build-to-rent projects, said that these kinds of projects prioritise renters’ liveability and enjoyment. At the same time, the developer holds on to property ownership.

Renters in many these developments are permitted to paint walls, hang pictures, and keep pets. Annual rent hikes are frequently locked in when a lease is signed.

Advantages of build to rent for renters

build to rent

There are several advantages to this new residential development for renters. More security and choice than a conventional lease, plus access to services, hotel-like amenities, and a “community feel” are all included in this residential development.

1. Enhanced tenure security

Build-to-rent developers are willing to accept leases of up to three years because of their long-term ownership strategy. 

This is a shocking win for Aussie renters compared to the private renting market, where it is normal to rent property for just a year.  

Aussie renters can now avoid the 12-month “leasing cycle” that usually has them seeking a new place every year in some situations because build-to-rent leases are longer than typical private rentals.

2. Communal living

Build-to-rent sells the idea of a community and multi-family housing, not just well-designed structures. 

Developers typically promote the community aspect of the this business, making it a big appeal to potential renters. 

As a result of the sharing of space in a communal living culture, renters naturally create friendships and relationships. Who doesn’t want that?!

3. Amenities

Build-to-rent buildings in Australia often offer several amenities like gym facilities, yoga rooms, coworking spaces, relaxation areas and spin studios. 

One of such is the HOME Southbank in Melbourne. In addition to providing 24-hour support, on-site maintenance, and same-day service, professionally managed services free up renters’ time so they may devote it to the things that matter most to them.

How big is Australia’s build-to-rent market?

In Europe, where it accounts for about a fifth of the total residential real estate market as of early 2020, this sector of real estate has been around for quite some time. 

Here in Australia, the build-to-rent market is still a little niche that’s poised to grow in the next years. It has been confirmed that there are presently 10,000 build-to-rent units in the pipeline from various developers in Australia. 

LIV Indigo, Mirvac’s first significant build-to-rent project in Sydney’s Olympic Park, was completed last year. There are 315 units in this affordable housing structure, with sizes ranging from studios to three bedrooms. 

The business intends to construct 2,200 such projects in Sydney, Melbourne, and Brisbane in the following four years.

Why build-to-rent is a good fit for Australia?

build to rent

The Build to Rent sector can thrive in Australia because of the combination of two variables. The first is the lack of affordable housing in Australia’s major cities. 

There are many reasons for this, including shifting market circumstances, poorer individual investor returns than other asset classes, and problems securing funding for BTR projects. 

Secondly, the popularity of these properties in Australia is on the rise. There is an increasing trend among Australians toward renting for both lifestyle and financial reasons. 

Moreover, a third of Australians now rent their homes, up from a mere 27% just two decades ago. 

Some Aussies believe that short-term renting is the first step toward homeownership. Today, long-term rental tenancies near cities are becoming more popular among young Australians because of the convenience and high standard of life they provide.

For Australia, several industry stakeholders believe that COVID-19 will operate as a prelude to increasing build-to-rent interest in the residential sector, just like the GFC did for the UK. 

Migration levels will rise due to Australians’ (mostly) successful response to the epidemic and the shift in tenants’ opinions of attractive rental facilities. 

Even though these projects won’t be able to compete with other asset types (retail, office, and elderly care), they’re still a relatively safe investment in terms of affordable housing options. 

Over the last ten years, the explosive growth of purpose-built student housing in the construction industry in Australia has also encouraged investors.

Where will build-to-rent projects be located in Australia in the future?

Build-to-rent developments will take root in the urban areas, typically 5-7km from the CBD. 

From London, they’ve moved to other big cities like Birmingham and Manchester in the United Kingdom. 

Due to Sydney’s land being too expensive, most of Australia’s developments of this kind (around 65%) occur in Melbourne. 

It has been said that the Brisbane market is “gaining momentum,” as well.

FAQs on the Build to Rent model

What is the concept of build to rent?

In Australia, the concept of Build to Rent (BTR) refers to a specific type of development where investors or developers construct residential buildings solely for long-term rental, rather than resale. Unlike traditional buy-to-let models where individual investors own and rent out units, BTR developments are professionally managed by dedicated teams.

What are the disadvantages of build to rent?

There can be a few disadvantages to the build to rent model:

  • Limited customisation: Tenants typically have less freedom to personalize their units compared to traditional rentals.
  • Potential lack of community: The transient nature of renters might make developing a strong community feeling challenging.
  • Uncertain future ownership: Tenants have no chance of gaining equity in the property unlike owner-occupiers.
  • Early stage market: The regulatory framework and market are still evolving, leading to potential uncertainties.

What are the benefits of build to rent in Australia?

There are a bunch of benefits to the build to rent model:

  • Increased rental supply: BTR aims to address housing affordability by increasing the availability of high-quality rental options.
  • Professional management: BTR tenants can expect consistent and professional property management compared to individual landlords.
  • Modern amenities and services: BTR developments often offer modern amenities like shared spaces, gyms, and on-site services.
  • Flexibility and convenience: BTR leases can be shorter and more flexible than traditional rentals, appealing to mobile demographics.

What is the act build to rent scheme?

There is no specific “Build to Rent Scheme” currently in place in Australia. However, several government initiatives aim to incentivize and support the development of BTR models. These include:

  • Tax concessions: Some states offer tax breaks on stamp duty and land tax for qualifying BTR projects.
  • Infrastructure funding: Grants and funding programs support the development of BTR projects with essential infrastructure.
  • Policy reforms: Regulatory changes aim to streamline planning processes and approvals for BTR developments.

Overall, Build to Rent is a developing concept in Australia with both potential benefits and drawbacks. While it remains to be seen if it can significantly impact the housing market, it offers an alternative rental option for specific demographics and contributes to increasing rental supply.

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