Tax concessions for Build-to-Rent Projects

On 12 February 2021, the NSW Treasurer released a set of guidelines to be considered in determining whether or not a build-to-rent project is eligible to receive land tax and stamp duty concessions.

Build-to-rent refers to residential development where the developer retains ownership and leases out the units, as opposed to the more popular model of selling all or part of the units.

The build-to-rent property model is experiencing unprecedented growth in Australia with a number of projects being planned or set to start construction within the next 12 months. In addition, the Government has introduced tax concessions to further stimulate this sector.

Build-to-rent trend

From an investment perspective, the build-to-rent model allows developers and investors to generate a long-term stable income whilst taking the opportunity to diversify their portfolios from more traditional asset classes.

The build-to-rent sector may also improve Australia’s housing affordability issues by driving many to consider residential renting as a long-term option as opposed to the popularised Australian ideology of ‘owning your own home’.

Planning Minister Rob Stokes foresees the nature of holding this type of asset long term gives developers and builders further incentive to ensure construction quality.

NSW Government offers tax concessions

The NSW Government has announced the following incentives for qualifying build-to-rent projects constructed on or after 1 July 2020:

1. reduction in the taxable land value by up to 50%; and

2. exemption from surcharge land tax and purchaser duty imposed on foreign investors.

The above concessions are available for a maximum period of 20 years, expiring in 2040.

Eligibility Criteria for Land Tax Concessions

To be eligible, a build-to-rent project must satisfy certain conditions.

1. Planning requirements:

   1. land must be zoned to permit residential flat buildings;

   2. rented units cannot be subdivided;

   3. there must be at least 50 self-contained units that are used specifically for build-to-rent;

   4. building standards such as building height, floor space ratio and parking must be observed; and

   5. if the build is in a business zone, the street level must contain commercial uses.

2. Ownership structure – the ownership of land must not be divided but held in a unified structure. Land owned by multiple entities holding ownership jointly is permitted.

3. Management – the units must have a management entity which tenants have on-site access to.

4. Lease conditions – tenants must offered a range of lease terms including a 3 year fixed term and be subject to a Residential Tenancy Agreement under the Residential Tenancies Act 2010.

Despite the strict regulations on the build-to-rent sect, the release of the Treasurer’s guidelines was largely welcomed by providing developers and institutional investors considering a build-to-rent project in New South Wales with greater clarity.

The effect of these concessions on the number of build-to-rent model developments will still be subject to the influence of the banking sector and the traditional requirement for presales in obtaining finance.

Henry William Lawyers can assist with any related enquires. Feel free to contact our people:

Ron Zucker +61 410 590 111

Vincent Tripodina +61 408 228 108

Chelsea Woodward +61 404 065 899

Anna Polhill +61 431 174 352