11/08/2021 - 11:11

Levelling the playing field for BTR

11/08/2021 - 11:11


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Build-to-rent apartment projects could solve the state’s housing challenges, but red tape remains a major issue.

Sentinel’s flagship WA build-to-rent project, Element27 in Subiaco.

Western Australia has lost its first-mover advantage in terms of build-to-rent apartment projects, with the practice instead having found solid ground on the east coast.

The nation’s first BTR project was completed in Perth in 2019, but WA has fallen well behind other states in the period since.

And WA’s tax and planning policy settings could be the biggest barriers, according to the Property Council of Australia WA.

(view a PDF version of this special report)

Traditionally, WA’s apartment development has centred on the build-to-sell (BTS) model, where a developer builds an apartment and then sells each unit, using pre-sales to fund construction. 

But record-low rental vacancies and the entrance of an international property player have started to challenge that blueprint, with industry and developers alike getting more serious about BTR developments.

Under a BTR, a developer retains ownership of and manages an apartment complex, instead renting each unit out, requiring significant capital upfront.

BTR apartment developments are well established in both the UK and US, where the asset class is estimated to account for up to 25 per cent of the $US2 trillion worth of property investments. 

But the concept has only recently landed in Australia. 

Despite WA pioneering the model, with US-based Sentinel Real Estate completing the first stage of its Subiaco BTR-project Element27 in 2019, the state has since failed to maintain the BTR momentum now building on the east coast.

Only one large-scale BTR development has progressed through WA’s planning process in the years since: Sentinel’s 175-apartment, 21-storey project proposed for 194 West Coast Highway in Scarborough. 

This is against a backdrop of more than 20 BTR projects now in planning or under way across Australia, according to the Property Council’s recent Building Momentum for BTR report. 

“Inhibiting the development of new projects is WA’s land tax framework,” Property Council WA executive director Sandra Brewer told Business News

“[This] sees projects charged at the highest rate of land tax, impacting operational costs, and making it challenging for BTR operators to develop projects with competitive rental yields.”

The Property Council has called on the state government to consider matching or exceeding the 20-year, 50 per cent land tax concessions now on offer for BTR projects in NSW, South Australia, and Victoria. 

Those tax concessions, along with planning changes, were introduced in 2020 to boost rental stock and provide more housing choice, while stimulating construction during the COVID-19 recovery phase. 

As a result of those initiatives in other states, Australia’s BTR sector surpassed $10 billion in value as of February this year, representing a 70 per cent growth spurt, according to CBRE data, with most projects planned for Melbourne (50 per cent) and Sydney (25 per cent). 

“Build-to-rent is designed, developed and operated with the renter in mind,” Ms Brewer said.

“It offers renters security in tenancy, a range of rental options including the option for pets, on-site management and maintenance.

“Supporting build-to-rent will without question help ensure the delivery of rental stock needed to slow the rapid escalation of rental prices across Perth, caused by a shortage in available rentals.”

Late last year, Perth’s residential vacancy rate hovered around the 40-year low of 0.8 per cent. 

Although there’s been some recovery since the end of the moratorium on evictions and rental price rises earlier this year, those conditions have provided fuel for industry to continue to push for more BTR projects. 

Ms Brewer said BTR development was the ultimate ‘shovel-ready’ solution to addressing rental market challenges: able to inject rental stock quickly while not relying on pre-sales for financing or investors to release the stock into the rental market. 

“If WA is to meet the private sector rental target outlined in the WA Housing Strategy 2020-2030, 60 per cent of all new dwellings need to be added to the rental market,” she said. 

“Currently, only 17 per cent of new dwellings go into the private rental market.” 

Private investment in rental stock in WA is also among the lowest in Australia and well below the national average. 

Failure to lift that figure in the short-term could be of concern, considering an estimated 41,830-plus rental dwellings will be required in WA by 2030, according to WA Tomorrow population forecasts. 

“Policy interventions are needed to ensure we have sufficient rental supply to meet growing market demand,” Ms Brewer said.


Sentinel is still the only major developer to have broken ground on BTR projects in WA, and that’s likely because of its international position as a seasoned BTR developer in the US. 

Sentinel managing director Keith Lucas said its Element27 project had proved successful with renters so far, operating at more than 95 per cent occupancy. 

The company is aiming to finish construction at Element27’s second stage in September, about the time Mr Lucas said the group planned to break ground on the project’s final stage. 

Upon completion, the entire Element27 campus will comprise 264 units across three buildings, with each sharing amenities. 

While Mr Lucas said the policy settings in WA weren’t overly conducive for BTR developments, the group had nevertheless pushed ahead with its plans to cement its advantage in Perth. 

The group received planning approval for its Scarborough BTR project in March and Mr Lucas said a start to construction on that project was planned for later this year. 

In navigating WA’s planning system – which does not recognise BTR developments as a separate asset class from apartments or provide BTR guidelines – Mr Lucas said Sentinel was focused on playing the long game. 

The first step was education, he said, and next was broadening a mindset fixated on home ownership.

“About 50 per cent of my job is explaining what BTR is,” Mr Lucas told Business News.  

“I get asked regularly: ‘How does BTR stack up against the Australian dream of home ownership?’ 

“It shouldn’t be seen as an ‘or’, it should be seen as an ‘and’; the future of BTR is seeing it as a choice, not a backup option.”

While the BTR model suited social and affordable housing, Mr Lucas said it was important the market understood that BTR was also about offering a premium lifestyle choice: offering a home in a premium location, a stepping stone towards home ownership, or an option for downsizers. 

Australia’s property market had grown alongside a strata model, Mr Lucas said, unlike the US where tax parameters were relatively evenly geared between BTS and BTR developments. 

That had started to change on the east coast, he said, however this had not deterred Sentinel’s affinity with WA.

Mr Lucas said Sentinel had been in talks with DevelopmentWA and the City of Subiaco over a plot of land along Hay Street, for a third BTR project. 

“We still have appetite in WA for the right projects,” he said. 

“We’re seeing a bit more aggressive policy action out of the eastern states; we want to balance out our portfolio.” 


NSW has led the charge in BTR reform, introducing land tax concessions as well as creating a separate definition for BTR residential accommodation.

It also has tailored design and development standards in its planning system, with mandates for BTR housing as a permissible use in certain zones, enabling a smoother approvals process. 

The NSW government has also pledged to waive foreign buyer surcharges for BTR developers. 

Allens partner Nicholas Creed, who specialises in property and corporate finance, said these measures had helped increase the viability of BTR projects for developers and make it a more attractive asset class. 

For example, he said, in an apartment building comprising different owners, the individual value of each apartment often fell under the threshold for the assessment of land tax.

As a result, it wasn’t typically a cost a developer needed to bear by the time a complex was completed. 

In comparison, as a BTR apartment building was owned by a single entity, land tax was assessed on the value of the whole building, Mr Creed said.

“The land tax and regulatory imposts are problems for debt providers just the same [as developers] because it reduces the amount of debt that can go into a project and still generate the investment return,” Mr Creed told Business News.

“Part of the investment return is being chewed up by the land tax.

“It’s much easier to bank a project where you’re building to sell because you get that short-term funding that gets readily and easily repaid out of the sales of the apartments or units when they’re built.”

Mr Creed said BTR developments required patient capital, relying on a long-term rental stream to repay debt. 

Under current regulations, BTR was still suited to capital interested in long-term returns, like pension funds, he said, however, land tax reform could boost its appeal, enabling BTR to generate better medium- to long-term return.

Mr Creed said foreign investor surcharges also stacked the odds against BTR projects in WA. 

“Foreign investors pay a 30 per cent withholding tax on BTR projects, whereas they’ll only pay a 15 per cent tax on non-BTR projects,” he said. 

“Why are we relatively encouraging foreign investment in some sectors of our property market and not others?” 

The recent BTR Stimulating Recovery, Ensuring Resilience report, published by Allens and Urbis, points to the UK as a case study of how policy changes – including reducing tax rates – significantly boosted BTR projects.

In the UK, a total of 47,754 BTR apartments were completed in Q2 2020, just seven years after regulatory reform. 

The Property Council report also highlights how Australian institutions already invest in BTR products in the US and UK.

“It’s about levelling the playing field with BTS or other developments to reduce the disincentives for investors and financiers to promote BTR projects,” Mr Creed said. 

“And it sits very well with things like the Infrastructure WA Strategy and the planning regimes built up around Metronet; it’s just the next piece in those puzzles.” 

That could lend itself to developers forging partnerships with government for the delivery of BTR, he said. 

It could also help de-risk the substantial capital required upfront via joint-investment or developing on state-owned land. 

In October 2020, Frasers Property Group and ASX-listed property group Mirvac were named preferred partners in the Queensland government’s BTR pilot project.

Under the pilot project, Frasers will develop 366 apartments across 25 levels at 210 Brunswick Street in Brisbane, neighbouring the Fortitude Valley station.

Once completed, Frasers will own and operate the complex and the Queensland government will provide a 25 per cent rental subsidy for a portion of the apartments. 

Frasers general manager development WA Tod O'Dwyer said the group was now assessing possible BTR locations in WA, however, these sites were also suitable for BTS developments, creating the competitive tension when comparing project risks and financial returns. 

He said Frasers would consider collaborating with the state government on a BTR project like it had in Queensland if the opportunity presented itself. 

Providing discounted land for BTR projects in inner-city redevelopment zones, such as Subiaco East and Perth City Link, is one BTR initiative the Property Council lists in its report.

“Ultimately, we believe that governments at all levels, across the country, are in a unique position to take a leadership role in this sector,” Mr O'Dwyer said. 

“They have strong land banks under their control and can significantly influence the associated planning outcomes.

“The current level of housing stress that we are seeing in the WA market ultimately needs a timely solution, and this is where government can provide the most assistance: sponsoring and fast tracking the right strategic development outcomes.” 


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