Author: Admin

Emerging from a period of economic and financial instability, one thing has become abundantly clear, Australians are hungry for sustainable investment.

This observation was confirmed last week by Australian research organisation Investment Trends through an audit of 2,854 retail investors and 321 financial advisers. One of the most significant findings, especially for financial services firms such as ours, was that 78% of ESG investors intend to trade stocks and funds solely based on environmental factors in 2021, a rise of 34% on the previous year’s reporting.

Surprisingly, while Australian investors seem to have an insatiable appetite for strong ESG standards and climate friendly investment, only 40% (approximately) of financial advisers were reported as actively recommending ESG investment to clients over the previous year. The report explained the hesitance, “Placed at the intersection of clients who are demanding more ESG investments and the firms trying to deliver, financial advisers are uncertain about how it will all play out”.

Investment Trends went on to note that improved reporting would ease some of these anxieties and help advisers feel more confident in recommending ESG compliant investment.

Standardisation and regulation on ESG reporting would be a positive step for the industry in Australia. Such action has already been taken in Europe with the introduction of the Sustainable Finance Disclosure Regulations (SFDR), which are expected to lead to the following benefits:

1. No Green Washing. Fair and honest regulation addresses misleading reporting from organisations who take advantage of loose standards for environmental, social and governing responsibility.
2. Increased investor confidence. It has been shown that companies and funds who adhere to strict and honest ESG standards mostly out-perform those who do not. This assessment verified by Morningstar, which found that 89% of sustainable indices outperformed their broad market equivalents in Q1 2020. With increased visibility of these results, investors and advisors alike feel encouraged to make a positive and profitable investment in the future.
3. A better Australia for Australians. Standardisation and accountability in reporting means that companies and fund managers are required to show directly how their investments and actions effect society positively and provide environmental benefit for generations of Australians to come.

At Vellum, we are dedicated to delivering exceptional outcomes for clients, excellent returns to investors and importantly positive, transparent impact to people and the planet.

The Australian property market has defied dire predictions

A spate of latest data shows that despite the ongoing pandemic and slower economy, Australia’s housing prices are continuing to soar in metropolitan cities such as Sydney, Melbourne, Adelaide and Brisbane, along with ‘hot spot’ regional areas with affordable housing and excellent accessibility to services like the NBN and national rail links.

It’s a stunning turnaround from forecasts made in the early days of the COVID-19 pandemic some 10 months ago, when it was thought by some analysts that property prices could fall anywhere from 10 per cent to 30 per cent. The figures come off the back of a recent Domain House Price Report that revealed the national median house prices rose 4.1 per cent in the December quarter, the steepest quarterly jump in four years.

Yet the impact of strained affordability on very low to moderate income earners is really hitting hard. Especially during the past year when workers have been stood down due to Coronavirus, affecting employment levels and greater economy.

Addressing a hidden housing crisis

According to Streetsmart Australia research, every night across Australia, more than 105,000 people are homeless. That is 1 in every 200 Australians who do not have a safe and secure place to call home. Rising rental costs and lack of affordable housing in cities where many people base themselves for greater access to health services, employment opportunities, education and community support, has a role to play.

While much of the public commentary is focused on homeownership, rising prices have a flow-on effect to rental prices. This is pushing many families, older people, single parents, and individuals to the brink.

Recent statistics from National Shelter show that many low-income households are paying up to 70% of their income on rent alone, leaving little for basic necessities like food, electricity and dental care. This heightened vulnerability increases the risk of homelessness.

While many people associate being homeless with living on the street, and while this is the sad reality for many people, only six per cent of people experiencing homelessness sleep rough. The other 94 per cent are couch surfing, sleeping on friends’ or relatives’ sofas, living in cars, sleeping in emergency accommodations, or living in other inadequate arrangements.

Of the 105,000 Australians experiencing homelessness, 42 per cent of these people are under the age of 24, and 44 per cent are women.

Why BTR can help stabilise a life

Build-to-Rent (BTR) developments are part of a longer-term solution for younger generations and anyone that needs stable housing in a big city.

The stable rental housing costs for tenants (and NDIS tenant suitable accommodation integrated into each apartment complex) won’t alleviate all the issues underpinning the nation’s homelessness, but it is making a difference. There were less than 10% tenant turnover change at Vellum and Urban Property Group’s Highland building in Penrith in Western Sydney since the initial pandemic lockdown in March 2020

This is by deliberate design, by carefully integrating into every project a focus on affordable, quality buildings that also meet ESG goals that can reduce living costs for tenants – such as recycled water, solar panels and community vegetable gardens – tenants’ desire to rent long term remains high.

With a focus on above-average rental returns for investors and a higher standard of well-priced accommodation, the BTR model is hopefully going to grow from strength to strength, for investors and tenants alike.

A once-in-a century pandemic means changes

As the second year of the Covid19 pandemic pushes ahead, property investors are grappling with where their future lies. Build-to-rent (BTR) developments are an increasingly enticing asset class, which may come as a surprise to some observers who had seen BTR take off much slower in Australia than in overseas markets.

With returns of at least five percent on average, BTR developments such as Vellum’s Highland and now Navali (to be completed in mid to late 2021) could be high-rise sector’s new golden goose. With vacancy rates of build to sell apartments in Sydney’s inner-city suburbs and CBD, for example at their highest in a decade, many landlords and investors are concerned that the major cities are not viable investments. As the COVID 19 pandemic continues to blur our sense of new normality at work and at home, an unrelenting work from home trend and a shift to sea change and tree change housing options has had a longer-than-anticipated impact on the market.

Rental vacancies up and yields are down, down, down

According to Domain, one of Australia’s biggest real estate sites, in November 2020 rental vacancies were at their highest in the apartment-heavy major CBDs. This was in stark contrast to the situation in holiday hot spots and smaller cities such as Hobart and Canberra where potential tenants are struggling to find homes.

Melbourne’s overall vacancy rate rose to 4.8 per cent in November from 4.7 per cent a month earlier, Domain rental vacancy rate data revealed. It was the highest in the country and comes after months of lockdown to stop the spread of COVID-19.

Sydney’s vacancy rate rose to 3.4 per cent in November, from 3.3 per cent the month before, while Brisbane had a slight fall in vacancies to 1.9 per cent down from 2 per cent in October.

Rental returns are down, and a far cry from the up-to- 4.8% yields enjoyed by many house and unit property investors in Sydney during the 2012-2107 property boom[1].

Compounding the trend to BTR investment is the vacancy rates in office towers across the cities. Commercial real estate is also having to do a full reconsideration of the business model with offices now longer an essential provision for many companies in 2021 and beyond[2].

Forever flexible work and a BTR opportunity combine forces

The volatile needs of a more flexible workforce in a post COVID-19 landscape means that investors and landlords are assessing their options for many of these shiny new towers that have been largely empty for much of the last 10 months since the first widespread lockdowns hit the nation. There has been discussion about whether these office spaces can be repurposed for residential use – and allow a BTR model to step in and steady the waters. With centralised management, corporatised systems, and less tenant fluctuation in the BTR sector generally, it makes sense.

The time to rethink existing models of property investing is ripe. Longer term, the rental market will rebound but the way investors, landlords and tenants operate has been up-ended due to the pandemic, and social, economic, and environmental forces that have followed. Only time will tell if that means more widespread investor confidence in the BTR market.

[1] Source: https://sqmresearch.com.au/property-rental-yield.php?region=nsw%3A%3ASydney&type=c&t=1%20

[2] Source: https://www.afr.com/wealth/personal-finance/the-outlook-for-landlords-20200924-p55yt9

Introduction to BTR

Build-to-rent (BTR) refers to a residential development in which all apartments are owned by the developer, often a managed investment trust, and then leased out to tenants.

BTR has become a hot topic globally, largely due to increasing housing demand and the evolution of the property investment sector. The remarkable success and phenomenal growth of the BTR asset class is well-known in the US and the UK, for example. Interestingly, the BTR concept did not exist in the UK before 2013.

BTR in Australia

Driven by rising unaffordability, lower home ownership and changing attitudes to property, BTR has become an effective solution to meet growing demand for purpose-build assets. An innovative and exciting opportunity, the Australian BTR market is backed by investors and favourable government policy such as tax concessions.

Demand for residential space in inner-city areas such as Melbourne and Sydney is increasingly competitive, reflecting the high price-point residential property has reached in large Australian capital cities.

According to PwC’s statistics release, Australia currently houses one-third of its population in the rental market and the data is much higher among younger Australians in capital cities. Around 70 per cent of 25 to 34-year-olds in Sydney are renters.

Some sizeable local developers such as Grocon, Lendlease and Mirvac have continued digging into the BTR model, to streamline their projects and adapt to current market conditions.

Win-win solutions for both developers and investors

For developers, BTR brings effectiveness in integrated property management whereby all rented units are owned or managed by a single landlord. On top of that, BTR caters to the needs of younger populations, who prefer flexibility and work closer to the capital cities, by providing housing in the well-located areas.

BTR is still in it’s developing stages in Australia with underlying growing potential. As a new investment vehicle, BTR helps promote ESG (Environmental, Social, and Corporate Governance) principals and benefits from state government incentives, such as the recently introduced 50% land tax discount by the NSW Government. The consistently high tenancy rate brings steady income to the developer rather than relying on initial sales.

Local and foreign investors now have the opportunity to enter the Australian housing market through fund investment rather than investing in full residences and BTR brings them alternative investment options with low risk and a stable income stream. Several superannuation companies and private equity companies have, in recent years, sought to invest in alternative sources of income in the Australian housing market, such as the recently launched Places Build-to-Rent Fund (Places BTRF).

Launched by Vellum Limited and Urban Property Group (UPG) in September 2020, Places BTRF aims to capture the rising investment sector which has now attracted AUD$132m capital, with an expected fund size growing to AUD$1bn in the future. The fund is the most recent response of Vellum Limited to the ready property sector, who has presences in Hong Kong, Mainland China and Australia for its professional financial advisory service. Located in Penrith, Highland and Navali are two BTR projects developed by the fund in line with NDIS design principles.

Case Study: Advantages of BTR Fund over Direct property investment

What are the advantages of BTR Fund compared to owning an investment property?

Investors have flexibility when entering and exiting the fund. For example, if they contribute a minimum investment of AUD$1m (for retail clients) into the fund, they have an option to exit in 2023 or pay AUD$100m (to wholesale investors) to exit within two years.

In the subscription, they are not required to pay a major deposit or loan. Greater property diversification of purpose-build properties have guaranteed lower risk, less volatile income stream. Residential properties investment may be an obstacle to most investors, however investors are greenlighted to invest in the sector via fund investment. Simultaneously, it’s an opportunity for co-investing with Australia’s well-regarded residential property developers UPG.

Who is it suited to?

• Advisers – who seek property allocation for their clients without taking overweight positions;
• High net worth investors – who seek stable and regular income and demand residential property investments, however could not afford to do so individually; and
• Experienced property investors – who seek better alternative investment opportunities;

Observation – Current trend of BTR

Responding to demographic changes and the housing needs of local people, the market has seen emerging demands for BTR accommodation. According to Allen’s 2019 BTR report, the population of renters will climb to 3,463,000, with an increasing of 16.17% during the decade 2019-2029, with the highest increases in people aged 20-34 and 55+.

The acceleration of BTR development was most noticeable in 2019 and early 2020 due to fall in cost of capital and lower housing supply due to structural changes. Several new BTR projects were announced by major market players.

Prior to the global outbreak of COVID-19, new residential supply in Australia had been in a continuous decline to below 2018 levels, compared to 35% at the beginning of 2019. Some market researchers believe the undersupply in the rental market will push out to 2022, however the lower population growth will offset this. Furthermore, more US investors are looking at the Australian property market due to its enormous potential.

However, more listed companies and superannuation funds are jumping onto the BTR success story. Current trends show a clear transition from private owners to corporation owners in the high-rise sector. We see a number of Australian state governments boosting the industry, by introducing the tax exemptions. However, fundamentally the market may need more policy supports especially for foreign investors, to further accelerate the development of the sector.

The Build to Rent 2020 Conference was a virtual event that ran on Monday 7 December, with Vellum Group as one of the two gold sponsors. It was an opportunity for our Managing Partner Binuo Erth to explain in detail our commitment and focus on being a leader in the Australian build-to-rent (BTR) market.

Binuo was able to deep dive into our Places Build-to-Rent Fund, backed by solid Environmental, Social, and Corporate Governance (ESG) principles supporting Vellum Group’s developments Highland and Navali in Penrith.

The invited speakers at the conference were experts from different sectors, including government, superannuation bodies, investment funds, big-four accounting firms and specialised law firms. Besides Binuo, other speakers included:

The Hon. Rob Stokes MP, NSW Minister for Planning and Public Spaces, NSW Government
Jessica Carmichael, Associate Director, Urbis
Anthony Garagounis, National Manager, Delivery – Build to Rent, Mirvac
Daryl Choo, Partner, Financial Services Tax, EY
Felicity Rourke, Partner, Allens
Luke Mackintosh, Strategy and Transactions, Partner, Real Estate Advisory, EY Oceania
Mark Power, Senior Director, Qualitas
Professor Hal Pawson, Associate Director, City Futures Research Centre UNSW
Renee Wirth, Group Executive Director, Office of the CEO, SGCH
Ryan Rathborne, Associate Director and Co-Head Property, CEFC
Tim Chislett, Partner, Allens
Kris Daff, Managing Director, Assemble Communities
John Lucchetti, Commercial Sector Leader, Principal, Australia, Stantec
Keith Lucas, First Vice President, Sentinel Real Estate Corp.
Travis Knipe, CEO, StarRez
Damien Webb, Head of Income and Real Assets, Aware Super
Sarah Amos, Head of Commercial, Queensland Treasury
Tom Forrest, CEO, Urban Taskforce Australia
Julian Cabarrus, Director of External Affairs and Strategy, Association of Superannuation Funds of Australia ASFA
Puian Mollaian, Associate Director of Structured Transactions & Advisory Services, CBRE
Steph Harper, Senior Valuer, Development Valuation & Advisory Services, CBRE
Dr Georgia Warren-Myers, Sustainability Lens Leader, Affordable Housing Hallmark, University of Melbourne
Alex Deluca, Mechanical Project Engineer, Stantec

The conference explored the outlook for BTR in the Australian market. The new asset class is expected to take off in Australia following supportive policies, such as the New South Wales government’s recent decision to cut land tax by 50% for BTR developments.

The BTR model is expected to diversify the existing housing stock, provide more affordable housing, and benefit more and more Australians. With further proposed regulatory reforms, developers and institutional investors are seizing the opportunity to become the first-movers in this emerging asset classes.

Speaking on the panel ‘BTR: Institutional Investors’ Perspective’, Binuo unpacked how the BTR market is growing in Australia. She explained the tangible ESG factors of Vellum’s Places Build-to-Rent Fund and discussed with other institutional investors the likely future of this exciting new asset class.

“Build-to-rent, also known as multi-family housing in Singapore, the UK and the US, has a long history of success in those countries with support from government and institutional investors to solve issues like economic downturns and social housing problems,” says Binuo.

Australian residential property, within which build-to-rent is an asset sub-class, is a well-developed real estate market with an excellent track record of delivering strong outcomes for residents and investors. As Binuo pointed out, Vellum sees areas like Sydney’s western corridor continuing their growth as desirable places to live. Australia has handled both the Global Financial Crisis and now the COVID-19 pandemic incredibly well, while the property market has been reliable even in the face of such crises.

Binuo estimates that the size of the Australian residential property market is AUD$5.5 trillion and BTR is currently not even 1% of the market size, whereas in other countries it is an established asset class and Australia is likely to follow this trend. In 2016, the entry point to the top 50 BTR investors in the US was Berkshire with 23,845 apartments. The number one investor in BTR in US in 2016 held 191,759 dwellings.

“We see the potential for the Places Build-to-Rent Fund to grow to over 1,000 apartments and over AUD$1billion under management by 2025.”

Social responsibility is a key focus for Vellum in all its activities and our Places Build-to-Rent Fund embodies all of the factors we see as favourable to both our investors and the broader Australian community. All of Vellum’s Places Build-to-Rent Fund buildings will incorporate NDIS-assisted living apartments, use recycled water and have solar roof top panels – such measures are incorporated into the building designs to achieve lower energy bills and higher ‘green’ ratings.

“Any resilient and sustainable business has to think about ESG risks and manage them before they cause revenue or reputational losses. COVID-19 is an example of a sudden case of ESG risk, which reminds us more than ever of our responsibility to protect people and the planet. It’s not just about the numbers, it should be sustainable investing, responsible investing, and impact investing,” added Binuo.

“At Vellum, we have seen success in many countries, and our Places Build-to-Rent Fund is on the right track. In fact, our first purposely designed BTR project Highland was completed in 2019 and has been fully occupied over a year now. It has been delivering 5.9% gross returns while also providing comfortable and safe accommodation for our tenants including NDIS recipients while facing the COVID-19 pandemic. We are proud to have been able to provide local support to our tenants.”

#BuildtoRent

To watch Binuo speaking at the Informa conference click here.

Build-to-rent developments not only hold the potential to provide a substantial return on investment, they can also contribute greatly to housing affordability and social and environmental sustainability.

That’s the view of Binuo Erth, who is leading Vellum Funds Management’s new Australian build-to-rent fund, which was recently launched with a $132 million capital raising and will eventually grow to be worth more than $1 billion.

The Places Build-to-Rent Fund promises to be one of the substantial new players in a sector that is just beginning to emerge in Australia, as several major local and international players advance major project plans.

Build-to-rent differs from conventional multi-residential development in that developers will fund a project with the intention of owning and renting units rather than selling them.

Vellum, a financial advisory group with a presence in Australia and Hong Kong, is partnering with local developer Urban Property Group to create what Ms Erth says will be some of the most environmentally sustainable buildings delivered in the sector to date.

The companies’ first project, an apartment building known as Highland in the Western Sydney suburb of Penrith, was completed in 2019 and has been fully tenanted for more than a year.

Ms Erth said Highland was providing a 5.9 per cent gross return, even through the challenges of the coronavirus pandemic.

“The occupancy rate has been very stable and high, at 93 per cent and above, and the turnover has been reasonably low as well.

“We see that proof of concept as being a very solid strategy for us to move forward.”

Environmental and socially-friendly components of Highland include solar panels and other renewable energy initiatives, wastewater and greywater management, vast common areas and a rooftop vegetable garden, as well as a concierge to help residents live their day-to-day lives.

“As each project goes ahead, and the scale increases, we will introduce more environmentally-friendly technologies into the planning and the construction stage,” Ms Erth said.

Vellum and UPG’s next project, known as Navali and also located in Penrith, will have more substantial renewable energy components and will include units built according to National Disability Insurance Scheme design principles, which will make the building more accessible to a wider range of people.

“Sustainability is quite difficult to achieve as an individual,” Ms Erth said.

Binuo Erth is expecting a boom in build-to-rent projects, particularly in Sydney.

“If I buy an apartment myself for an investment, a social and environmental impact will be a little hard to build into the concept of an investment.

“But as a build to rent developer, every single aspect of a project can link to environmental, social and governance principles.

“We can help people with disabilities not to be isolated and we can help people to work from home, that is a very important factor as well.

“And as landlords we can contribute to renewable energy and efficient waste management.

Ms Erth said she believed the build-to-rent sector was poised to take off in Australia, particularly in NSW, where land tax incentives were recently announced.

“Build-to-rent has always been a very stable sector,” Ms Erth said

“We’ve experienced that in the UK, Singapore and the United States. It’s a well developed concept in a lot of other countries.

“In Australia, we haven’t had the same level of government support as in those countries, until very recently.

“With the 50 per cent land tax cut in NSW, it will really encourage the whole build-to-rent sector to move forward, and also for build-to-rent to be recognised as a new asset class, separate from residential.

“On the other side, we think that residential has been there as an asset class for long enough for us to generate a sufficient amount of data to prove that this is a good sector to get into, especially in New South Wales and Sydney.

“We have seen really stable growth in the past 30 years – there has been only three slight dips in the past 30 years and every single time it happens it is almost a sort of revenge-style increase straight afterwards.

“We have strong confidence in that market.”

Original Source from: https://www.apimagazine.com.au/news/article/build-to-rent-to-boost-affordability-sustainability/

Vellum is pleased to share coverage of its Places Build-to-Rent Fund which was published by The Australian Financial Review and can be seen online here: https://www.afr.com/property/residential/nsw-land-tax-change-draws-new-132m-build-to-rent-fund-20200918-p55ww5

To learn more about the Places Build-to-rent Fund, please visit our webpage http://www.placesbuildtorentfund.com , or contact one of our team on [email protected]