The Australian Government’s recent move to incentivise Build-to-Rent (BTR) projects will help open up new options for property investors.
A financial instrument called a Managed Investment Trust (MIT) is a core part of build-to-rent projects for investors. It allows multiple investors to pool their funds, enabling even individuals with limited financial resources to invest in property through Real Estate Investments Trusts (REITs).
Managed by professional managers, MITs are set to have their tax structure changed to encourage greater investor participation and increase the number of rental properties available.
The Government is reducing from 30% to 15% the withholding tax rate for MITs involved in this style of project. This means less tax will be taken from the profits, leaving more money for investors. The lower tax rate will also apply to any capital gains from selling a stake in the trust.
Build-to-rent developments often feature modern amenities and professional management services. For investors, participation in build-to-rent schemes include:
- Stable Income: Properties provide a reliable income stream due to longer lease terms and lower tenant turnover.
- Tax Benefits: The Government’s new legislation includes attractive tax incentives for investors, such as the reduced managed investment trust (MIT) withholding tax rate on rental income and capital gains.
- Growing Demand: With Australia’s rental market booming and a shift towards longer-term renting, demand for build-to-rent properties is expected to soar.
- First opportunity: For investors with limited funds, this is a great way to start your journey in real estate investment before moving to the purchase of individual properties to lease.
- Diversification: It’s an option worth considering if you want to diversify your portfolio and limit risk further.
To qualify for the tax benefits, a build-to-rent development must meet specific criteria, including:
- Construction starting after May 9, 2023.
- A minimum of 50 dwellings.
- A single ownership entity for at least 15 years.
- Minimum lease terms of three years.
- 10% of dwellings offered as affordable housing.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.