The game-changing option for renters, coming to Melbourne


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Tenants may soon sign longer leases in renter-only buildings owned by big developers.

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Melbourne renters are poised for a game-changer that could shake up the property market: major developers are looking to become large-scale landlords.

Tenants may soon sign longer leases in renter-only buildings with the county's biggest developers, instead of with traditional mum and dad investors.

The build-to-rent sector is on the precipice of a significant push. Popular in the US and more recently the UK, it involves developers holding and renting out stock they build, rather than selling it.

As the proportion of renters grows amid the housing affordability crisis, developers and institutional investors - such as superannuation funds - are considering chasing this new lower-risk, lower-return asset class.

"There isn't a developer or financier in this room who is not now working on a build-to-rent solution," said development giant Grocon's Victorian head of planning, design and development, David Waldren, at an affordable housing lunch in Melbourne this week.

"Rather than trying solve the problem of home ownership, which is perhaps our generation's view of the future, [should the conversation not look at] the generation struggling to get into the market in the first place."

There are 884,000 Victorians who rent or own a rental property, according to the state government, which prompted long-term leases being introduced. At the same time, the tech sector has looked to disrupt the burgeoning rental market with a series of 'rent bidding' apps.

That growth potential is shifting the conversation around build-to-rent, the same way it was five years ago in the UK, according to Knight Frank research director Paul Savitz.

"This is a potential way to keep people in Sydney and Melbourne, in the inner city," he said.

But, Mr Savitz said, it was not as viable as selling apartments was for developers, particularly because the Melbourne residential market still delivered high returns. Considerable government support in the UK meant the situation was different. Even without incentives, lower-risk and longer-term returns, portfolio diversification, low vacancy rates and strong capital growth in Melbourne made it more appealing.

Renters would benefit from build-to-rent developments because, as evidenced in the UK, they bring longer leases, rent increases in line with inflation, no agents' fees and amenity fees included in rents, Mr Savitz said. People could even keep pets and hang art.

Melbourne's first major project, was this month announced by Salta Properties. The 260-unit development will be built in Docklands.

Build-to-rent has grown on a smaller scale in Melbourne, Beller Property Group director Andrew Fawell said, in affluent areas like South Yarra and Armadale. Build-to-rent had traditionally been popular in commercial property, he said, but as commercial yields shrank, residential yields looked more attractive.

"Everybody is thinking about it, but the fact is no one really has an answer yet," said Sally Capp, executive director of the Property Council in Victoria. The two major factors needing to change were the stigma around long-term rentals in Australia and an obsession with high capital growth returns.

Against the backdrop of an out-of-control housing market, there were broader social impacts to more quality rental supply, Unison chief Michael Perusco said. "At the moment, all you've got is the option to buy, the option to rent on a largely short-term basis or social housing. We need another class in there that allows for long-term stability for renters."

The story The game-changing option for renters, coming to Melbourne first appeared on The Sydney Morning Herald.

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