Residential back on the corporate radar
Residential investment property in Australia is largely owned by individuals, with Mum and Dad landlords owning the lion’s share. But with so many of us recently injecting funds into superannuation there’s an ‘unnatural’ limit being placed on the supply of rental homes. Why? AMP and the other big super funds don’t own a bunch of residential property and generally self-managed super funds can’t borrow from a bank, so they rarely own rental homes. In the USA a lot of residential property is owned by companies, with many of them large trusts that own upwards of several thousand apartments. But Australia’s residential property has rarely offered returns that would attract the corporates, who’ve turned to commercial and industrial real estate for the stability of long leases and indexed rents.
There may be some change on the horizon here. In August Labor announced their $603million National Rental Affordability Scheme, an incentive package designed to entice Australia’s institutions to supply 50,000 new rental homes over the next 5 years. The scheme would see eligible tenants receive a 20% discount on market rent with the institutional property investor committing to this for 10 years in return for an annual handout from the government. The feds will pay $6000 per annum and each state government will chip in $2000. Hopefully new Housing Minister Tanya Plibersek now has this policy’s implementation right at the top of her 2008 ‘to do’ list.
Fifty thousand homes is only a bit more than a drop in the bucket as far as increasing supply and helping with rental affordability. But more interesting to watch will be the willingness of our big end of business town to take another look at residential investment.
Across the nation 30% of us are renting and many tenants are now looking for longer leases and are happy to pre-commit to annual rent increases. While rental yields are still low relative to the returns available from non-residential property, there’s simply so much money flushing about in superannuation that residential may soon be back on the shopping list. Have a look at www.equityresidential.com for one American company that offers a very tenant-oriented service. They own 160,000 residential apartments and are able to use the efficiencies that come with being a massive landlord. For example if there’s maintenance needed and they don’t have it done within 2 days they give the tenant a rent holiday! And their tenants never have to worry about the landlord selling up or moving back in.
If Australian institutions can find the viability in residential property investment and offer tenants an attractive renting alternative, the way we look at our rental market may just be about to get a shakeup.
Do you think institutional investors will start buying residential property? Tell us what you think!