Australia cuts property tax rate for foreign investors

Foreign institutional investors in Australia’s build-to-rent (BTR) sector will see their withholding tax rate halved from July next year.

The new tax rate of 15% – down from 30% – was announced in the latest Federal Budget.

Under the country’s investment regime, foreign investors need to use a management investment trust (MIT) to hold their assets. While all other commercial real estate investments, including purpose-built student accommodation, pay a 15% MIT withholding tax rate, BTR projects currently attract a higher rate.

The government will also increase the capital works tax reduction rate from 2.5% to 4% for BTR projects with at least 50 apartments.

BTR investors, including Greystar, Sentinel and Oxford Properties, have actively campaigned for a level playing field.

Michael Streicker, president of Sentinel Real Estate Corporation, said: “By making investments in long-term, sustainable housing in Australia more competitive with other international markets, the Albanese Government has enacted a change that will attract billions of dollars into the local sector and support the creation of tens of thousands of quality rental apartments over coming years to help address Australia’s growing housing shortage.”

Streicker told IPE Real Assets: “We have enormous belief in the value that BTR communities can add to the local housing mix and welcome this significant step towards enabling BTR to achieve its potential in Australia.”

Chris Key, Greystar’s managing director, Australia, told IPE Real Assets: “The decision to reduce the withholding tax treatment of BTR projects is a step in the right direction.

“We expect it will encourage more interest in build-to-rent projects from international institutional investors and unlock more capital.“

Key said the policy recognised BTR as an institutional asset class and equalised the tax treatment investors were afforded in the other institutional real estate sectors.

Peter Menegazzo, CEO of Investa, which runs the Indi BTR platform that manages Oxford Properties’s projects in Australia, also said the budget announcement would “equalise” the investment landscape for offshore investors.

“As a nascent sector, investment certainty is vital to ensure Australia continues to attract offshore capital. Securing offshore capital will allow the BTR sector to be part of the solution to ease the housing undersupply issues we are facing in Australia,” he said.

The Australian government has also cut the withholding tax rate on clean data centres and warehouses from 15% to 10% to help raise minimum energy efficiency requirements for existing and new clean buildings.

To read the latest edition of the latest IPE Real Assets magazine click here.