Build to Rent: Tax considerations for private investors

What is Build to Rent?

Build to Rent (BTR) is a multi-unit development with a single owner holding the property for rental purposes. BTR projects are large in scale (more than 150 units) and differ to other residential developments because the primary focus is on enhancing the tenant experience. In other words, BTR projects are build with renters, not ‘owner occupiers’, in mind.

According to a new report, Australia’s Build to Rent (BTR) pipeline has expanded by 68% during the past year, with the market estimated to now exceed $10 billion.

With the total number of units approaching 15,000 and the current property market heating up, it’s no surprise there is continued interest in BTR assets. There are many benefits to this type of asset, but it’s important private investors understand the tax implications that come with holding it.

Benefits of investing in BTR

Many private investors will use a unit trust as their investment vehicle, allowing them to identify a defined ownership of the development, and access benefits such as:

  • Having a marketable ownership interest in the entity
  • Capital Gains Tax discounts (subject to who owns the units)
  • Tax-deferred distribution amounts as a result of depreciation and special building write off claims.

Important considerations for private investors

Although there is high demand for BTR assets, private investors need to consider the nuances of owning this asset class. Investors of this asset class will:

  • Be ineligible to claim GST, therefore additional funding is required to construct the development
  • Likely be required to maintain a lower Loan to Value Ratio (LVR) by their bank upon completion of the development
  • Have lower (albeit more stable) returns.

With real estate prices surging and investors flocking to snap up additional properties, BTR will continue to see increased demand in the future. Investors looking to hold assets in this class need to consider the tax implications before investing in BTR projects to ensure it’s right for them.

If you are interested in learning more about the BTR model and how you can invest in these projects, please contact a member of our real estate and construction team