APARTMENT king Harry Triguboff said build to rent or multifamily housing cannot be done in Australia.
Speaking at the Australian Property Institute’s 53rd Kiparra Day conference in Sydney, the Meriton founder said 50% of apartment buyers in Meriton developments are investors who rent out their investments.
Triguboff said these individual Chinese and local property investors are active in this competitive market, where yields are already low.
He suggested that the introduction of build to rent housing run and operated by major institutional investors would add further competition and put pressure on returns.
“This build to rent, what they are talking about, cannot take place.
“It just can’t be done, they way they see it, because there is no enough profit,” he added.
Triguboff also said the current market does not need build to rent housing.
“What they can build to rent, we don’t need that.
“We are not short of supply of apartments for rent for $800 or $900, what we are short of supply is for accommodation for $300 (per week).
“Now that is what you want, and they can’t do it,” he continued.
Triguboff is potentially Australia’s largest private landlord.
In February this year the Meriton founder revealed that in the past 15 years he has amassed 3,066 apartments in his personal portfolio, which is estimated to be worth $3 billion.
The portfolio produced an income of $79.57 million in 2015-16 for Triguboff, and it is expected to top $100 million in the latest financial year.
Meanwhile Triguboff said the apartment prices have come back by at least 10%.
“It is not true that prices always go up. Long term it does,” he said.
Triguboff added that the apartment market is unpredictable.
He said apartment sales fluctuate on a weekly basis, which he acknowledged has never happened in the past. Triguboff said some Chinese buyers have had difficulty settling because the banks will not lend to them, as a result Meriton has had to step in to provide vendor finance.
Triguboff’s comments on build to rent housing comes after the fledgling sector suffered a setback with the federal government excluding foreign investors in the sector from receiving favourable tax treatments under the proposed changes to the managed investment trusts (MITs).
Under the changes, foreign investors who invest in only affordable housing managed by a registered Community Housing Provider will be eligible for a 60% capital gains discount.
At a recent Australian Property Institute conference in Melbourne, AustralianSuper’s Christine Phillips and SG Hiscock & Company’s Grant Berry said the build to rent sector could be a real game changer.
Both AustralianSuper and SG Hiscock invest in the sector in the US, where it is known as multifamily housing.
Berry said in the past, the sector was not as attractive when compared to other asset classes such as offices, which was previously generating yields in order of 7% whilst residential was providing 3.5% to 4% yields.
However conditions have changed, Berry said because of prices.
“Now office yields are down to 4%, take it down another 100 basis points, it is down to 3%,”
Berry also said the differences between offices and residential is that offices can have vacancies of up to 20% whereas residential does not.
In the US, Colliers International research shows the occupancy rate nationally was 96.1% during the second half of 2016 with rental growth averaging 3.7% annually.
A SQM Research report released last week warns that a supply shortage is looming in the residential property rental market.
SQM Research’s latest data showed Sydney’s vacancy rate has eased from 1.7% to 2.0% over the past 12 months, and Melbourne’s has come in from 1.9% to 1.7% in that time.
Vacancy rates in Brisbane were 3.1%, Adelaide 1.6%, Canberra 1%.
Recently Mirvac enlisted the help of UBS to create a “club” for developing and owning build-to-rent projects, with an upfront yield of 4.5% targeted.
Salta Properties announced in May it would develop Melbourne’s first major build-to-rent project in the form of a 260-unit, $330 million Docklands tower.
Australia’s first multifamily project will be the 1,250 Gold Coast development built for next year’s Commonwealth games by a $500 million fund managed by UBS Grocon Real Estate.
Australian Property Journal
