What exactly is build-to-rent?

Posted by Joshua Mellick

In today’s world, renters account for just over 30 percent of Australian households. This is about a third of the population, significantly increasing from just approximately 25 percent of homes 20 years ago.

A concept that is beginning to appear in Australia is this build-to-rent model. It is already well-established overseas, especially in the United Kingdom and the United States but is currently gaining popularity amongst Australians.

So, let’s take a deeper look into what this is all about.

With Australia’s housing affordability continuing to be a challenge, the build-to-rent model is shaping to be an alternative to owning your own home. The build-to-rent model means that instead of developers building to sell to buyers, the idea is to keep these properties and lease them out to long-term renters. Generally, they offer longer leasers, up to three years – which gives tenants greater security of tenure and flexibility.

The build-to-rent model is used in a recent project in Sydney Olympic Park called “LIV Indigo.” Most renters are either Millennials or Generation Z, with approximately 70% of residents under 40 and couples without children being close to 60% of residents. This has been popular amongst Australia’s younger generations since young Australians are still being priced out of the market.

The model offers several advantages to tenants. These are:

Greater security of tenure – because of the developer’s long-term vision underlying this model, they are willing to accept lengthier leases, often as long as three years.
Amenities – these developments include amenities such as a gym, yoga rooms, co-working spaces, and so on.
Flexible lease arrangements – due to the minimal or no bond required, tenants are free to design and paint their areas, and dogs are permitted without pre-approval.
The ability to change apartments if living requirements change – the possibility to move to another house in the complex if their circumstances alter, for example, if their family develops and they want additional bedrooms.
Community living – tenants in a communal living culture are more likely to build friendships and connections.

While lengthier leases and the chance to personalise their home appeal to many potential renters, there are a few disadvantages. They are as follows:

Paying top-dollar – paying a higher fee for the accompanying services and amenities.
Risk of being locked in – some build-to-rents include break costs with specified lease durations if your circumstances change and renting no longer fits you.
Not owning a home – still not owning your own home.

Rising property prices, other demographic changes, and different lifestyle choices mean Australia’s younger demographic is renting for longer. This concept is expanding and gaining acceptance as a viable investment and rental alternative, mainly in Melbourne and Sydney, and will continue to grow in the near future.

Whether you are a beginner or experienced property investor, explore the benefits of investing in rental property through our expert insights on Build to Rent and take action towards building your wealth portfolio with Blue Wealth today.

Posted by Joshua Mellick, on 16th Aug 2022