FIRB BTR reform and fee reductions: a strategic shift to encourage more investment in build-to-rent

By Nicholas Cowie & Alex Ghaderi

Investment in established Build to Rent (BTR) assets has become easier following a Government policy change announced on 1 May. Combined with the fee reductions for BTR applications implemented last year, this significant change shows a continued strategic shift towards removing barriers to foreign investment in BTR. Real Estate partner Nick Cowie and graduate Alex Ghaderi talk more about what this means for BTR investors below.

Opening the door for foreign investors to invest in established BTR  properties

On 1 May 2024, the Australian Government released an updated foreign investment policy document (Updated Policy). A key highlight of the Updated Policy is the green light for foreign investors to purchase established BTR properties. This pivotal change follows the Treasurer's announcement on 10 December 2023, which stated that commercial land FIRB application fees would apply to all BTR projects post 14 December 2023, rather than the significantly higher residential fees.

Previously, the Australian Government's policy prohibited foreign individuals from purchasing established dwellings unless they were to be redeveloped for additional housing or met the tests for commercial residential premises under GST legislation. Established BTR does not fall neatly into either of those categories. The Updated Policy has corrected that uncertainty, allowing foreign investors to purchase established BTR properties.

The decision to allow foreign investors to invest in existing BTR properties is expected to bolster liquidity in a secondary market for BTR assets, which while still a new and growing sector in Australia, attracts significant institutional investment in overseas BTR markets. The government hopes that this policy change will encourage investment in new BTR developments and ultimately add to Australia's housing stock at a time of housing crisis around Australia.

This key change is also aligned with the government's overall theme for the Updated Policy which is to adopt a risk-based approach, with real estate transactions being generally regarded as lower risk from a national interest standpoint. The FIRB process will be streamlined for trusted investors in non-sensitive sectors like housing. The Treasury is setting a new performance target of processing 50% of investment proposals within the 30-day statutory decision period from 1 January 2025. Time will tell how these sorts of targets play out of course, with repeated extensions of time to process applications having been quite common over the last few years.

Reduced fees for BTR projects

Prior to 15 December 2023, BTR investors faced substantial application fees for projects involving residential land. For instance, a residential investment worth $50 million could have incurred fees as high as $1,119,100. Fees at this level create a significant financial disincentive for investors considering BTR developments, especially when the business case for these projects is often borderline at best.

However, a policy change announced by the Treasurer on 10 December 2023 has significantly altered this landscape. The commercial land FIRB application fees now apply to all BTR projects, even those involving residential or agricultural land, effective from 14 December 2023. This means that the fees for the same $50 million residential investment would be just $14,100 (subject to indexation) on the commercial fee schedule.

There are tax issues yet to be properly addressed, but this policy change represents a significant shift in the financial implications for BTR investors. Reducing one of the financial barriers to entry will help make BTR projects a more feasible and attractive investment option.

Boosting housing stock through BTR

The government's moves to permit the purchase of established BTR projects, lower the fees for these investments, and streamline the FIRB process for the real estate sector generally all point towards an attempt to make the foreign investment framework more consistent and predictable for foreign BTR investors. Time will tell, but these changes should assist to encourage the development of new BTR projects and liquidity in a secondary market nationwide which, when taken together, should underscore support for investment in new housing stock when it is so obviously needed.

Click here for more information on the 1 May policy changes and how they affect residential land. Or to explore our FIRB guide, click here.