Are Build-to-Rent Developments the Future?

While only a relatively new concept within the Australia market, build-to-rent developments are currently receiving plenty of attention. Some see them as a promising solution to the significant supply and affordability issues renters are facing. Others see them as a new benchmark in luxury, offering a quality of life that is superior to traditional rentals.

Here we take a closer look at the build-to-rent model and why it’s suddenly generating so much interest. As part of this, we will explore the unique benefits that current and planned developments are promising to provide. We will also consider the limitations of this model and what prospective tenants need to consider before signing a lease.

What is the build-to-rent model?

As the name suggests, build-to-rent is a process where developers design and construct properties specifically for the rental market. These are usually higher density developments, like high-rise apartment blocks or townhouse complexes, in popular urban locations. That said, some developers have indicated that they are also considering lower density build-to-rent communities located within key growth corridors.

The major difference between a build-to-rent property and other rentals is the ownership and management structure. Traditionally, once a development is complete, individual lots are sold off to private buyers or other investors. However, with build-to-rent properties, ownership of the whole development is retained and managed by a single entity (usually the initial investor).

This model is well established in places like the US and UK, where “multi-family housing” developments are quite common. Although it’s newer to the Australia market, it’s rapidly gaining traction, with multiple projects planned in most capital cities. This is largely due to recent tax structure and planning law changes, which increased the investment potential of build-to-rent developments.

What are the advantages of the build-to-rent model?

For potential tenants, the different management structure means build-to-rent properties offer several benefits when compared to a traditional rental property. These are:

• Greater stability: Most traditional rentals are negatively geared, meaning they need to be sold to provide investors with any real return. By contrast, build-to-rent properties provide investors with a steady income stream, so long as they are tenanted. As such, lease terms tend to be longer (often up to 3 years) and there are fewer reasons to require tenants to vacate.

• More favourable lease terms: In addition to being longer, most build-to-rent leases often have lower – or even no – bond requirements. Many also allow tenants to keep pets and make minor changes (e.g. paint walls, replace blinds, etc.) without prior permission. Some even let tenants upsize and downsize to other properties within the same development, as their requirements change.

• Stronger commitment to maintenance: The ability to maximise the income produced by a build-to-rent development depends on it maintaining its appeal to tenants. As such, it’s in the owner’s best interest to keep everything looking its best and working as designed. It also increases the value of sustainability measures and the importance of using high-quality materials and finishes.

• Better services and amenities: Marketing of build-to-rent properties tends to have a strong focus on the lifestyle being offered to potential tenants. Supporting this, most developments are almost hotel-like in their features, which range from gym and spa facilities to coworking spaces. Many also offer concierge and dog walking services, and have onsite building managers who coordinate moves, maintenance, and repairs.

Many proponents of the build-to-rent model also highlight its potential to help improve rental availability and affordability. However, within Australia, most developments are being targeted at the higher end of the market. And, while some include a percentage of “affordable” properties, rents for these are generally only discounted, and not truly affordable for most renters.

Are there downsides to build-to-rent properties?

If you are considering moving into a build-to-rent development, you should expect to pay a premium for the privilege. Rents for these properties generally sit comfortably above market rates for comparable properties in similar locations. Arguably, the additional amenities justify the extra cost, but only if you regularly use all of the facilities and services.

Prospective tenants also need to be aware that, while longer terms are possible, most developments charge significant break lease fees. This means that, if you do need to move on for any reason, it could be quite a costly exercise.

It’s also worth noting that, because the build-to-rent market is so new to Australia, regulation is currently fairly limited. These developments also do not have official body corporate structures, as there is only one owner (usually the developer). As such, there are limited mechanisms in place to protect the interests, and advocate for the rights, of residents.

Want to discuss this further?

If you are considering moving and would like to discuss your options, including whether a build-to-rent development would be right for you, contact Your Home Hunter. Our highly experienced team are experts in helping tenants find – and secure – the perfect rental property to call home.