Built-to-rent developers target young Brisbanites not willing or able to buy

As more young people become locked out of the property market, some in the real estate industry have begun building developments to rent out exclusively – in hopes of securing long-term tenants and providing renters with security of tenure.

Red & Co is one such company, a one-stop real estate solution which now includes building and renting out its own townhouses and units.

“Not everyone has to own their own home and we’re never going to sell it so that provides tenants with certainty,” director David Laverty said. “People will want to travel more and they’ll get married later. What they need is security of tenure.”

When it can, Red & Co offers its tenants leases for five years or longer.

Tenants Queensland chief executive Penny Carr said long-term leases and a guarantee the landlord won’t sell the house would go a long way for tenants’ peace of mind.

“One thing that underpins uncertainty is that properties switch between rental and owner occupier,” she said.

Ms Carr said renters still needed to be aware that the developer could change priorities and sell up, however. “It could be built to rent but then sold later on,” she said.

Another benefit was an institutional investor could be easier to deal with than a mum and dad investor.

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“If someone’s owned and lived in a house and it’s still kind of their family home they can sometimes be a bit overly protective, wanting to keep it how it was when they lived in it,” Ms Carr said. Although she stressed not every institutional investor would be professional, either.

Another positive if a build-to-rent scheme took off would be increased stock in the rental market, Ms Carr added.

“It should have a positive effect on supply and demand from a renter’s point of view.”

Mr Laverty said institutional investors could offer lower prices, and could lower rents city-wide if enough took to the practice.

“If we can get enough of it going we can put downward pressure on rents somewhat,” he said but admitted the prospect was unlikely.

“I don’t think it’s going to be a huge thing, I don’t think everyone’s going to start doing it, he said. “Developers are generally in for a quick profit and it’s a slow return.

“There’s not that much patient capital out there that wants to do it, you won’t see an avalanche.”

Most developers weren’t set up to start building to rent, Mr Laverty said.

“You need to be able to structure your finance so you can actually do it and the whole point is also to get a really good rental yield.

“That’s why we run the strategy.”