Build-to-rent to boost affordability, sustainability

Build-to-rent developments not only hold the potential to provide a substantial return on investment, they can also contribute greatly to housing affordability and social and environmental sustainability.

That’s the view of Binuo Erth, who is leading Vellum Funds Management’s new Australian build-to-rent fund, which was recently launched with a $132 million capital raising and will eventually grow to be worth more than $1 billion.

The Places Build-to-Rent Fund promises to be one of the substantial new players in a sector that is just beginning to emerge in Australia, as several major local and international players advance major project plans.

Build-to-rent differs from conventional multi-residential development in that developers will fund a project with the intention of owning and renting units rather than selling them.

Vellum, a financial advisory group with a presence in Australia and Hong Kong, is partnering with local developer Urban Property Group to create what Ms Erth says will be some of the most environmentally sustainable buildings delivered in the sector to date.

The companies’ first project, an apartment building known as Highland in the Western Sydney suburb of Penrith, was completed in 2019 and has been fully tenanted for more than a year.

Ms Erth said Highland was providing a 5.9 per cent gross return, even through the challenges of the coronavirus pandemic.

“The occupancy rate has been very stable and high, at 93 per cent and above, and the turnover has been reasonably low as well. 

“We see that proof of concept as being a very solid strategy for us to move forward.”

Environmental and socially-friendly components of Highland include solar panels and other renewable energy initiatives, wastewater and greywater management, vast common areas and a rooftop vegetable garden, as well as a concierge to help residents live their day-to-day lives.

“As each project goes ahead, and the scale increases, we will introduce more environmentally-friendly technologies into the planning and the construction stage,” Ms Erth said.

Vellum and UPG’s next project, known as Navali and also located in Penrith, will have more substantial renewable energy components and will include units built according to National Disability Insurance Scheme design principles, which will make the building more accessible to a wider range of people.

“Sustainability is quite difficult to achieve as an individual,” Ms Erth said.

“If I buy an apartment myself for an investment, a social and environmental impact will be a little hard to build into the concept of an investment. 

“But as a build to rent developer, every single aspect of a project can link to environmental, social and governance principles.

“We can help people with disabilities not to be isolated and we can help people to work from home, that is a very important factor as well.

“And as landlords we can contribute to renewable energy and efficient waste management.

Ms Erth said she believed the build-to-rent sector was poised to take off in Australia, particularly in NSW, where land tax incentives were recently announced.

“Build-to-rent has always been a very stable sector,” Ms Erth said

“We’ve experienced that in the UK, Singapore and the United States. It’s a well developed concept in a lot of other countries.

“In Australia, we haven’t had the same level of government support as in those countries, until very recently.

“With the 50 per cent land tax cut in NSW, it will really encourage the whole build-to-rent sector to move forward, and also for build-to-rent to be recognised as a new asset class, separate from residential.

“On the other side, we think that residential has been there as an asset class for long enough for us to generate a sufficient amount of data to prove that this is a good sector to get into, especially in New South Wales and Sydney. 

“We have seen really stable growth in the past 30 years - there has been only three slight dips in the past 30 years and every single time it happens it is almost a sort of revenge-style increase straight afterwards. 

“We have strong confidence in that market.”