Build-to-rent housing projects in NSW are relatively uncommon. That position is anticipated to change with the NSW Government recently announcing reform to the planning and tax provisions governing build-to-rent schemes.
Build-to-rent refers to a residential development in which all apartments are owned by the developer and leased to tenants. This contrasts with the traditional model of build-to-sell where the developer sells off each individual lot to a third party who then lives in it or rents it out as their own investment.
There have been two initiatives announced to incentivise developers to explore build-to-rent projects.
The first is a 50% land tax discount on the construction of certain build-to-rent projects from 1 July 2020.
The second is a proposal to prepare a new State Environmental Planning Policy (Housing Diversity) 2020 to facilitate investment into these schemes. A draft Housing Diversity SEPP has not yet been released. However, it is anticipated that the Housing Diversity SEPP will introduce definitions and planning provisions for build-to-rent housing and co-living based on the Explanation of Intended Effect released in July 2020 by the NSW Department of Planning, Industry & Environment.
It is proposed that the definition of build-to-rent housing would refer to a building that:
- contains at least 50 self-contained dwellings that are offered for long term private rent;
- is held within a single ownership;
- is operated by a single management entity; and
- includes on-site management.
It is proposed that the definition of co-living would refer to a building held in a single ownership that:
- provides tenants with a principal place of resident for 3 months or more;
- includes on-site management;
- includes a communal living room and may include other shared facilities, such as a communal bathroom, kitchen or laundry; and
- has at least 10 private rooms, some or all of which may have private kitchen and/or bathroom facilities, with each private room accommodating not more than two adults.
It is intended that the Housing Diversity SEPP will also include a mechanism where the building may change from a build-to-rent scheme to a strata-titled apartment development.
The schemes would only be permitted in certain zones including R4- High Density Residential, R3- Medium Density Residential and B4-Mized Use.
Unfavourable GST conditions are a concern for the build-to-rent developer market. Potentially the market would need to rely on government subsidies to operate because while GST is passed down to buyers in a build-to-sell model, GST can’t be passed down in a build-to-rent model.
Tenancies could also prove problematic for developers if there are frequent changes in occupancy rates.