Build-To-Rent Developers Set To Benefit From The New Victorian Tax Break
Build-To-Rent Developers Set To Benefit From The New Victorian Tax Break
As part of its state budget, the Victorian government announced a land transfer duty waiver of 50 per cent for new residential properties, and 25 per cent for existing residential properties, for purchases up to $1 million for contracts entered into between 25 November 2020 and 30 June 2021.
The government is to also bring forward 50 per cent commercial and industrial land transfer duty concession for regional Victoria to contracts that commences on or after 1 January 2021, instead of 1 July 2023. They also announced land tax breaks that include a 50 per cent land tax discount for build-to-rent developments running from 2022 to 2040. This move follows a similar land tax cut for BTR projects adopted by NSW in July this year.
Analysts with UBS said the Victorian tax cut could provide a greater boost, given that more than half of mooted BTR projects are based in the southern state. They estimated in a clients note that this will add 5 per cent to income.
Given the UBS expectation that BTR projects will transact on a less than a 4 per cent cap rate, they analysed a significant uplift to the end value of residential projects as this change will make more projects viable as BTR and enable groups like Lendlease to achieve a development profit (e.g. 15 per cent margin on cost) for Victorian build to sell (BTS) projects, which are re-purposed as BTR.
Two Build-To-Rent Developers in Australia are ready for a boost with the new Victorian Tax Break. They include:
- LendLease:
Lendlease $500 million residential plan at its Melbourne Quarter project could become one of the early beneficiaries of a Victorian tax break designed to improve build-to-rent developments.
In August, Lendlease chief Steve McCann signalled that the global property giant was actively considering the Melbourne Quarter and Brisbane Showgrounds projects for their potential to become build-to-rent housing as he believed there is a capacity for conversion of some products and was already focused on how lend-lease might tweak the design aspects to maximise their value as rental products.
One of the strongest prospects of this conversion is the second apartment tower, an 800-unit proposal, which Lendlease has on the drawing board at its $3 billion urban regeneration site in Melbourne’s Docklands.
- Mirvac Group:
Mirvac, a diversified property developer, is an early leader in the emerging BTR sector as well. They are completing a project in Sydney and with at least three more in the pipeline in Melbourne.
Mirvac chief Susan Lloyd-Hurwitz told The Australian Financial Review that they welcome the land tax concession from the Victorian Government which will help facilitate a successful and scalable BTR sector in Victoria, as it allows BTR developments to be subject to similar amounts of state tax as build to sell.
They are keen to work closely with the government to ensure that the details of the scheme work assist the sector as experiences in other states has shown the need for industry and governments to work closely together to ensure the best outcomes.
Analysts with UBS said that investors were underestimating the potential of the sector and the ability of operators, including Mirvac and Lendlease, to achieve development returns once BTR projects are completed and sold down.
References:
- Victoria unveils new payroll tax break
by Jotham Lian
https://www.nestegg.com.au/earn-money/tax-refund/victoria-unveils-new-payroll-tax-break
- Build-to-rent developers set for a boost with new Victorian tax break
by Nick Lenaghan
- Mirvac chief urges states to follow NSW on stamp duty
by Nick Lenaghan