Continuing the build-to-rent conversation in Australia

21 September 2020

In brief

A number of New South Wales tax-related measures in response to the COVID-19 pandemic have recently been enacted, including land tax relief for certain build-to-rent (BTR) properties, relief for foreign owners from stamp duty surcharge and land tax surcharge for certain BTR properties.

This article discusses the impact of recent land tax and foreign surcharge amendments to the BTR sector and encourages Australian Governments and investors to continue the conversation on BTR properties to assist with addressing housing affordability and easing security pressures facing Australia's future generations.

In detail

A brief overview of Australia’s private rental market

Australia currently houses one-third of its population in the rental market - and this statistic is much higher in our capital cities and among younger Australians (for example, 70 per cent of 25 to 34 year olds in Sydney rent their home). Of this, 40 per cent of overall renters are considered ‘long-term’, holding this status for at least 10 years.

Australia’s weak tenancy laws and the fact that most rental homes are owned by individual investors means that tenure is usually short term, the tenant has very few rights with respect to the aesthetics of the property (inside or out), and under most tenancy contracts, the landlord has the power to evict the tenant on 60 days’ notice, without cause. Security of tenure is compromised for such families and individuals, with half of all renters having moved three times and 10 percent of all renters having moved more than ten times.

How can build-to-rent housing help?

A strong enabler for rental security and better conditions for tenants would be through tax concessions and other measures that entice institutional investors (e.g. superannuation funds, insurance companies, large developers) to build properties to lease directly to families – known as “Build to Rent” or “multi-family” housing in other parts of the world such as the UK and US. Very broadly, in these countries, BTR-style projects are structured and taxed in a similar manner to ordinary commercial projects. Whereas, as set out below, the tax outcomes for BTR projects in Australia can be quite different to ordinary commercial real estate.

The single ownership of these developments, coupled with the ongoing stable returns derived from consistent rental income, means that greater security of tenure is provided as the owner seeks to retain tenants for as long as possible.

BTR can provide large-scale housing developments in locations which are accessible to jobs, schools, amenities and services. Well-connected communities in locations which are close to transport and strategic centres provide excellent opportunities for individuals and families to thrive. While BTR is not a complete solution to fixing housing affordability, it can allow for people to live in desirable locations where they ordinarily would not be able to afford a mortgage, in particular, the deposit required to secure a mortgage.

The current barriers preventing BTR in Australia

Current tax laws

Australia’s federal and state/territory laws distinguish between BTR investments and other commercial investments such as build to sell.

For example, under current goods and services tax (GST) laws, BTR developers cannot claim GST credits on the land and construction costs incurred to develop BTR stock, which is available for build to sell. Additionally, residential rents are not subject to GST. Therefore, a 10 per cent GST on the costs incurred by BTR developers (except finances) arises on BTR projects.

In addition, in most Australian States and Territories, the stamp duty and land tax payable on residential land (including BTR) is higher than that for commercial land, increasing the cost of BTR developments. In NSW, stamp duty on acquisition could be as high as 15 per cent of the gross market value of the land (compared to commercial rates of around 5.5 per cent), and the land tax could be over 4 per cent per annum (albeit generally based on unimproved land value), which may make the development uncommercial.

Under Australia’s current income tax laws, BTR investments may also attract a significantly higher income tax impost for foreign investors than investments in other real estate asset classes, if they are not eligible for the 15 per cent managed investment trust (MIT) concessional tax rate (although note that BTR investments that satisfy the affordable housing conditions will benefit from the MIT concessional tax rate).

Construction costs Australia ranks as one of the most expensive countries in the world when it comes to the cost of construction. Some studies have ranked Sydney as one of the top ten most expensive cities in the world for both commercial and residential construction. This can be attributed to high labour costs and a lack of collaboration between stakeholders and complex government regulations, including long timeframes to obtain development approval.
Cost of land As BTR developments are suitable for locations which are closer to city centres, effective transport options and amenities, land is generally more expensive than the outer fringes or areas with low accessibility.
Yields and preference for capital gain Another barrier preventing the emergence of the BTR sector in Australia is that historically the potential yield generated by a BTR development is significantly lower than what might be generated from other asset classes. There is currently a clear investor preference for capital gain where investment into the residential market is sought.
Lack of appropriate financing Banks are inherently risk averse, and require historical trends and data to support their underwriting assumptions. Because there is no historical data of BTR in Australia, domestic banks struggle to provide construction financing solely for a BTR product. In contrast, in a build-to-sell development, banks have security in the form of minimum required pre-sales before the commencement of construction (e.g. 50 per cent). As the units in a BTR development are being rented individually after construction is completed, there are no pre-sales which results in less security and a longer repayment period.
Unclear planning policy around BTR The planning system does not currently identify BTR as a development type, so there are currently no provisions around this type of land use. There is a need for BTR to be defined within the parameters of planning controls, to guide the development of this product. In understanding the BTR product, it may be necessary for planning controls to provide policy specifically pertaining to BTR, addressing where it differs from a standard residential flat building. There is an opportunity for this to be led by the Government through clear policy.

Benefits BTR can bring to investors and the Australian economy

Commercial property yields for some asset classes are below 5 per cent in Sydney and Melbourne, making a BTR product more viable in comparison, with leading investors willing to accept yields of 4.5 per cent within Greater Sydney (the issue will be in the development yields, which are below development yields for build to sell and quite tight for most developers.) In addition, the BTR cash flow profile is more acceptable to institutional investors focused on long-term returns given the stability of cash-flows, absence of any make-good requirements, reduced re-leasing risk and reductions in commission payable compared to the commercial and industrial asset classes.

The impact of BTR is well demonstrated in other countries with stabilised BTR asset classes having an overall increase in housing supply and diversity, put upward pressure on construction and management standards and provide a more secure form of rental.

BTR developments also allow for the creation of new jobs, not only through large-scale construction and redevelopment, but also within the day-to-day management of the asset. This includes, for example, property managers, cleaning services, maintenance and landscaping.

A much needed change - NSW land tax reduced by 50% on BTR developments

As noted above, annual land tax is a significant contributor to the high ongoing operating expenses of BTR. On 11 August 2020, in NSW the State Revenue Legislation Amendment (COVID-19 Housing Response) Bill 2020 (NSW), which included a number of amendments including changes to reduce land tax by 50 per cent for the next 20 years for new BTR housing projects, was enacted and demonstrates the recognition by the NSW Government of the importance of this asset class for Australia.

Under the new rules, a 50 per cent land tax discount is available to NSW developers who invest in eligible BTR schemes which will go towards making this more acceptable to developers. To be eligible for this concession, an application must be made and the following requirements must be met:

  • A building must be situated on the land, and construction of the building must have started on or after 1 July 2020.
  • The Chief Commissioner must be satisfied that a significant proportion of the labour force hours spent on the construction of the building involves or involved work performed by persons whom the Chief Commissioner considers belong to any or more of the following classes of worker:
    • apprentices or trainees,
    • long-term unemployed workers,
    • workers requiring upskilling,
    • workers with barriers to employment (such as persons with a disability),
    • Aboriginal jobseekers, or
    • graduates.
  • The Chief Commissioner must be satisfied that the building is being used and occupied for a ‘BTR property’, in accordance with guidelines to be approved by the NSW Treasurer (Guidelines). The Guidelines may include provisions with respect to (amongst other things) minimum lease conditions that must be offered to tenants of the BTR property, and minimum scale of a building to qualify. Whilst the Guidelines are yet to be released, we expect that a BTR development in metropolitan areas may need to have at least 50 units, with a different threshold for regional areas to be considered, but this will need to be confirmed. 

Where only part of a parcel of land is being used and occupied for BTR property, there will be an ability for the land tax reduction to apply on a proportionate basis.

A clawback of the reduced land tax will apply if, within 15 years, the land is subdivided or the ownership of the land is otherwise divided. Reassessment will occur for the year in which the land is subdivided or the ownership of the land is otherwise divided, as well as for each preceding year the land tax was reduced, limited to 15 years preceding.

New South Wales - foreign surcharge stamp duty and surcharge land tax relief 

The rules also extend to providing an exemption from foreign investor surcharges (additional 8 per cent for surcharge stamp duty, and an additional 2 per cent for surcharge land tax) until 2040, and integrity measures have been included to ensure discounts are not used for tax avoidance (similar to those referred to above in the clawback of reduced land tax). 

For both the surcharges, the land must be acquired and held by an Australian corporation (i.e. incorporated or taken to be incorporated under the Corporations Act 2001 (Cth)) and the construction of the BTR development must be carried out by that corporation or a related body corporate on or after 1 July 2020. 

For the surcharge stamp duty exemption, construction must occur after the land has been transferred to the Australian corporation, and the land must have been transferred on or after 1 July 2020. We expect the Guidelines to clarify whether the “Australian corporation” requirement is satisfied where a corporate trustee acquires and holds the land in its capacity as trustee of a trust. 

Generally the surcharge stamp duty and surcharge land tax exemption require the constructed BTR property to be eligible, meaning that the starting assumption under the provisions is that the surcharges would be paid and an application for a refund would be made (within certain time limits set out below): 

  • Surcharge stamp duty - generally requires an application for the refund to be made within 12 months after the owner of the land first became entitled to a reduction in the value of the land for land tax purposes, and no later than 10 years after completion of the transfer of the residential-related property to the Australian corporation.
  • Surcharge land tax - generally requires an application for a refund to be made within 12 months after the owner of the land became entitled to the refund, and no later than 10 years after the land tax year concerned.

However, there is the ability for the Chief Commissioner to approve a person as an “exempt transferee”/”exempt person” if the Chief Commissioner is of the opinion that the person is likely to become entitled to a refund of the full amount of surcharges. 

What land tax or foreign surcharge relief do the other Australian states and territories offer for BTR developments?

NSW is the first to have land tax reductions specific to BTR projects. Whilst some states (e.g.Victoria and Queensland) have ex gratia relief available for certain stamp duty and land tax foreign surcharges, these are not specific to just BTR projects, and do not extend to land tax in general (it only applies to surcharge stamp duty and surcharge land tax). At this stage, other Australian states and territories do not have land tax or foreign surcharge relief that could apply to BTR projects.

The following table compares the various relief available between the relevant states (subject to satisfying relevant eligibility criteria, and successful application). 


Land tax relief or reduction

Surcharge land tax relief

Surcharge stamp duty relief

New South Wales

post-construction only 

post-construction only

post-construction only



during construction only



generally during construction

Notably, the Queensland government has announced a BTR Pilot Project which involves the government providing a rental subsidy to the developer. The Victorian and Queensland regimes and the Queensland BTR Pilot Project are discussed in further detail below.

Victoria - foreign surcharge stamp duty and surcharge land tax relief

In Victoria, the acquisition of residential property by a foreign purchaser may attract an additional stamp duty surcharge of 8 per cent on the value of the property acquired, and an additional surcharge of 2 per cent in land tax. However, foreign corporations and foreign trusts may be eligible for an exemption from surcharge stamp duty and/or surcharge land tax.

The Victorian Treasurer issued gazetted guidelines on 1 October 2018 outlining the general principles and circumstances which will be considered in deciding whether an exemption should be granted. BTR developments must meet certain criteria to be eligible, including that the commercial activities of the corporation or trust must significantly add to the supply of housing stock in Victoria, either through new developments or through redevelopment, where such development is primarily residential.

The Victorian surcharge land tax exemption is only available during the period of construction and is not available once construction is completed. Compare this with NSW where the land tax surcharge exemption for BTR developments is generally only available after construction has been completed.

It should also be noted that Victorian foreign surcharge stamp duty may not apply if the sole or primary use of the property is “commercial residential premises” as defined in the GST law and if it is consistent with the guidance released by the Victorian revenue authority for interpreting some premises which are not defined in the GST law. This is because such property would not be considered “residential property” and therefore not subject to foreign surcharge stamp duty.

Queensland - foreign surcharge stamp duty and surcharge land tax relief

In Queensland, the acquisition of residential property by a foreign purchaser may attract an additional surcharge stamp duty of 7 per cent on the value of the property acquired (referred to additional foreign acquirer duty or AFAD), and an additional 2 per cent of surcharge land tax. However, foreign corporations and foreign trusts may be eligible for an exemption from such surcharges.

Similar to Victoria, rulings have issued providing guidance as to when ex gratia relief will be available. One of the main eligibility criteria for the surcharge land tax relief is that they must make a significant contribution to the Queensland economy and community.

Queensland - BTR Pilot Project

Under the Queensland BTR Pilot Project, the Government is looking to work with developers, investors and/or consortia to facilitate BTR developments in Queensland. Most recently, it was announced that the project expected to deliver up to three developments supplying over 750 total dwellings, with 20 to 40 per cent of these dwellings provided as affordable rental housing, with preferred proponent(s) expected to be announced in late September 2020.

The BTR developments initially will be built on privately owned land at the cost and risk of a successful proponent, and in return, the government will provide a targeted rental subsidy. Unfortunately, there have been delays with the delivery of the BTR pilot project from its initial announcement in 2018 and compounded by the effect of COVID-19 on market conditions.

Other matters to consider

BTR as “commercial residential premises”

BTR investments may be considered ‘commercial residential premises’ as defined in the GST law. Factors that support the classification of the BTR investments as ‘commercial residential premises’ for GST purposes include:

  • the property is run on a commercial basis
  • the property has the capacity to provide accommodation to several
  • unrelated residents at once
  • accommodation is offered to the public
  • the main purpose of the property is providing accommodation
  • there is central management to accept reservations, allocate rooms and arrange services for guests
  • the operator of the property supplies accommodation in their own right
  • management provides or arranges services and facilities for guests; and
  • occupants usually have the status of guests.

Where BTR projects qualify as ‘commercial residential premises’, a raft of implications follow, including the ability to obtain credits for GST on construction costs, MIT benefits for income tax purposes (i.e. access to the concessionary 15 per cent MIT withholding tax rate). Also, in Victoria, foreign surcharge stamp duty may not apply if the sole or primary use of the property is “commercial residential premises” and if it is consistent with the guidance released by the Victorian revenue authority for interpreting some premises which are not defined in the GST law.

As the definition of commercial residential premises requires a detailed consideration of the nature and benefits offered by the investment, this would likely require a ruling from the Commissioner of Taxation to confirm the treatment of a BTR investment as commercial residential premises. Other investments that currently qualify for commercial residential premises include some student accommodation and serviced apartments.

Foreign Investment Review Board (FIRB)

In the context of the FIRB and investment by foreign persons into BTR projects, it is necessary to distinguish between "commercial land" and "residential land". Residential premises that qualify as commercial residential premises, applying the same GST Act definition, are treated as "commercial land" for FIRB purposes and therefore normally attract the higher monetary threshold of $275m (or $1,192m for foreign investors from FTA partner countries). Residential land acquisitions normally attract a $0 threshold. However, since 29 March 2020, due to the impacts of the coronavirus outbreak, all monetary thresholds have been temporarily reduced to $0. These temporary measures are expected to end on 1 January 2021. Investment by foreign persons acquiring a substantial interest in Australian land such as a BTR project that meet the relevant thresholds require FIRB approval prior to making that investment. Slightly different tests apply to foreign government investors.

FIRB application fees are based on the purchase price of the land or premises. On a purchase price between $9 million and $10 million, the residential land fee is $106,000. Fees for commercial land are materially lower, starting at $2,100 if the purchase price is $10 million or less.

It is also worth noting that absent an applicable exemption, certain changes in the upstream structures for an investor who is a foreign person investing in the BTR project may require FIRB approval before that change can occur.

Community Housing Providers (CHPs)

CHPs have historically played a role in holding land and providing social and affordable housing. Whilst this form of investment is a different market to the BTR investments discussed in this alert (as is NDIS housing), it can fall under the broader umbrella of ‘build-to-rent housing’.

Broadly speaking, CHPs have access to lower taxes and council rates, density bonuses, and even access to cheaper land through collaborations with Government, significantly lowering the cost of entry to BTR investments. There are many affordable and social housing charities in Australia that are registered as CHPs. As a result of the lower cost of entry, CHPs are a natural gateway to stimulate the growth of the BTR sector in Australia, and they can play a role in bringing together private investors into BTR.

BTR momentum in Australia

Despite the current barriers to BTR, it has been our experience that we have started to see BTR developments gain momentum in Australia, with more than 30 major BTR projects with an average size of 365 apartments, confirmed over the past 12 months. Recent media coverage indicates an additional pipeline estimated at more than 10,000 units is in due diligence with further announcements expected later in the year and beyond. Notably, many of the BTR projects in Australia contain social and affordable housing elements and limited investment from offshore institutional investors.

The 50 per cent reduction in land tax in NSW for new BTR projects should further supercharge investment in this asset class in NSW. Also, the relief for foreign owners from stamp duty surcharge and land tax surcharge for certain BTR properties should mean that foreign developers are on a more equal playing field.

The takeaway

The NSW land tax cut as well as the relief for foreign owners from stamp duty surcharge and land tax surcharge for certain BTR properties are welcome changes for investors and developers considering BTR projects, and a great way to invigorate the conversation on the need for reforms to increase the viability of this asset class. As the BTR investment landscape continues to strengthen, the benefits to the Australian economy from the growth of BTR are clear. We hope to see further discussion and announcements from the Federal and other State Governments that support the move made by NSW.

Our vision is that further tax reform can align investment in BTR projects with other commercial investments (e.g. office, retail and industrial assets), including access to the 15 per cent MIT withholding tax rate for foreign investors, land tax and stamp duty concessions and full credits for GST incurred on construction costs.

Contact us

Kirsten Arblaster

Partner, Tax, PwC Australia

Tel: +61 3 8603 6120

Nick Rogaris

Partner, Corporate Tax, Real Estate and Infrastructure, PwC Australia

Tel: +61 2 8266 1155

Rachael Cullen

Partner, Tax, PwC Australia

Tel: +61 409 470 495

Cherie Mulyono

Partner, State Taxes & Shine (PwC's LGBTIQ+ network), PwC Australia

Tel: +61 2 8266 1055

Barry Diamond

Partner, State Taxes, PwC Australia

Tel: +61 (3) 8603 1118