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National Australia Bank (NAB) has voiced concerns over the new tax legislation aimed at foreign investors in Australia’s build-to-rent (BTR) sector, cautioning that while the changes are positive, they fall short of addressing broader challenges. The legislation, which halves the tax rate for foreign investors from 30% to 15%, aligns it with domestic investors but does not resolve key roadblocks such as state taxes, high construction costs, and lengthy planning processes.

Key Points:

1. NAB’s Stance:

   • NAB CEO Andrew Irvine said the legislation is a step forward but insufficient to boost foreign capital in the BTR sector.
   • He highlighted the need for reforms in local and state taxes, construction cost reduction, and streamlined planning processes to enhance project viability.
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2. Macquarie’s Perspective:

   • Macquarie’s Asia-Pacific real estate head, James Kemp, supported the changes, stating they improve Australia’s competitiveness and attract foreign investors familiar with BTR projects globally.
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3. Build-to-Rent Sector Challenges:

   • Only 32% of Australia’s 56,600-apartment BTR pipeline has secured funding (Urbis report).
   • Land costs, market uncertainty, and competition with build-to-sell developers remain significant hurdles.
   • BTR accounts for just 0.2% of Australia’s property market, compared to 12% in the US.
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4. Broader Opportunities:

   • NAB has committed $6 billion to affordable and specialised rental housing by 2029, with $4.4 billion already allocated.
   • Macquarie sees growth in the "living sector," encompassing various housing models, including retirement and affordable housing.
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5. New Kensington Project:

   • The $380 million, 477-unit Kensington BTR project by Local, backed by NAB and Macquarie, includes affordable, social, and disability housing units.
   • Local’s co-CEO, Dan McLennan, emphasised the tax cut’s role in increasing liquidity and confidence for domestic investors, potentially unlocking greater investment in the sector.
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Significant Quotes:

• Andrew Irvine (NAB):“We’ve got to get more viability in projects because costs are still too high, planning is still too long and taxes need to be worked on.”
• James Kemp (Macquarie):“The managed investment trust legislation provides stability and aligns investment to build-to-rent like every other commercial asset class.”
• Dan McLennan (Local):“Reducing the tax just opens up the investing universe for the asset class, and that’s going to bring a lot more confidence and investment.”
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Takeaway:

While the tax cuts are a welcome development, Australia’s build-to-rent sector faces structural issues that need addressing to fully unlock its potential. Collaboration between developers, financiers, and governments will be crucial for sustainable growth in this emerging market.

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