Mitsubishi takes the plunge into Australia’s housing market

Mirvac’s LIV Indigo build to rent project at Sydney Olympic Park.

The dramatic upswing in the build-to-rent industry is bringing in fresh foreign capital and commitments to new projects from local billionaires. They are being drawn by the promise of rising returns amid the country’s rental crisis and shortage of new housing, which is forecast to persist throughout the decade.

In one of the largest plays, Japan’s Mitsubishi Estates Corporation is poised to take a stake in Mirvac’s build-to-rent operation and will back the 5000 unit portfolio being assembled around the country.

The move shows the growth potential of the emerging asset class at a time when traditional apartment construction is lagging and other big investors are making more moves in the sector.

US funds giant Sentinel has just struck a deal which will see it shift into South Australia, rounding out the network of build-to-rent blocks that it is developing around the country.

And in Melbourne, the industry’s epicentre, the billionaire Tarascio family is building up its own pipeline, winning approval for a new block next to Victoria Gardens precinct in inner-city Richmond.

The moves show the demand for new product among investors and that developers are meeting this surge despite the challenges that have been thrown up by rising costs and labour squeezes.

The sector is also considered essential in addressing the housing challenge, which has hit major capitals as accommodation shortages worsen.

The build-to-rent industry is now a key part of the solution to the rising problem of housing affordability, which remains at dire levels as house price falls are offset by rising interest rates.

Mirvac is the top-listed player in the industry, and flagged at its results last month that the underlying fundamentals of the sector remain compelling, drawing investors to its build-to-rent portfolio which has an end of value of about $1.7bn.

“Our capital-raising process is also well advanced, with exclusive due diligence under way with two parties. These parties are aligned with our develop to core strategy, with growth expectations to develop 5000 apartments. We anticipate a financial close prior to year-end,” chief executive Campbell Hanan said at the time.

An artists’ impression of Salta’s flagship development at 25 River Boulevard, Richmond.

Mr Hanan cited vacancy rates for capital city rental stock approaching 1 per cent and rents going higher. “With significant demographic tailwinds following the resumption of immigration and the return of international students, combined with a restricted supply backdrop, the outlook for the sector is very positive,” he said.

Leasing levels are high at Mirvac’s LIV Indigo at Sydney Olympic Park, and LIV Munro in Melbourne is performing ahead of expectations, while projects like Liv Anura in Brisbane and Liv Aston in Melbourne will come online next year, with LIV Albert Fields to follow.

Mirvac tapped investment bank Jarden and real estate agency CBRE to secure investors for the portfolio, and is also offering a minority slice in the operating platform. The deal would mark the first operating platform level deal when finalised. The parties declined to comment.

In Melbourne, the Tarascio family’s Salta Properties has unveiled plans for its flagship build-to-rent development at 25 River Boulevard, Richmond, after winning planning approval. The site is on the Yarra River, linking to the eastern edge of the growing Victoria Gardens precinct. Salta Properties managing director Sam Tarascio said the newly approved plans aligned with the company’s focus on turning its expertise to the emerging build-to-rent industry. “This will be the flagship development in Salta’s extensive build-to-rent pipeline and reflects our commitment to creating vibrant, amenity-rich communities with unrivalled design,” he said.

In keeping with the demands of millennial renters, the project will be fully powered by renewable electricity with no gas, and it is targeting a 5-Star Green Star Buildings certified rating and 1 Star Fitwel rating. Designed by Bates Smart as an urban resort to fit with its natural surrounds, it will sport private dining rooms, co-working spaces, a pool, a gym and a wellness centre.

The project will comprise 473 apartments with a mix of studio and one and two bedrooms, with onsite parking. The $200m building job is expected to kick off later this year, with the first residents to move in 2025.

The move comes in the wake of plans by Salta and the listed Vicinity Centres known as the Doonside Precinct. That build-to-rent project will see the Victoria Gardens precinct overhauled, with new retail elements and six new apartment blocks with 839 units.

It is currently in planning.

Salta has already launched a smaller pilot build-to-rent project, partnering with Moda in Malvern East.

It has a second pilot under construction in Queens Pde in inner-city Fitzroy North, due to open early next year.

The four projects will comprise more than 1750 apartments in just the first stage of Salta’s build-to-rent pipeline. Other sites will take its empire to more than 3500 apartments across multiple prime areas, with a focus on high-end units.

Meanwhile, South Australia is getting its first build-to rent towers, with US funds giant Sentinel Real Estate Corporation to launch a project in Adelaide. Sentinel has struck a deal to acquire a key site in Renewal SA’s Bowden precinct and will develop about 250 units on the 4000sq m site in Adelaide’s inner-north. Once finished, it will be slotted into Sentinel’s expanding Kinleaf property management platform.

SA Housing and Urban Development Minister Nick Champion welcomed the boost to housing supply, which he said would alleviate pressure on renters and provide more choice.

“The build-to-rent sector is emerging as another way to help address housing shortages and ease the rental squeeze – and it’s great to see such a major global property player back Bowden as the place to do just that,” he said.

Render of the Mirvac build to rent project LIV Munro in Melbourne. Picture: Supplied

Sentinel Fund Manager Australia director Michael Streicker said the company’s blocks were designed and run with renters as the priority. “This acquisition marks an important step in Sentinel’s national growth strategy,” he said.

The New York-headquartered company already has blocks under way in Victoria and Queensland, as well as WA. It is aiming to build a $1.5bn local portfolio backed by Dutch pension fund manager PGGM, while the Victorian and some WA assets are backed by another investor.

And Queensland is now emerging as the next build-to-rent battleground as governments look to get housing supply firing.

Treasurer Cameron Dick this week unveiled a series of tax concessions to spur the building of more build-to-rent projects.

The supply race is just getting started.