Canadian pensions target build-to-rent sector in Australia
Up until a few years ago, the build-to-rent (BTR) multifamily residential sector in Australia was almost non-existent, according to George Agethen executive vice president and co-head of Asia Pacific at Ivanhoé Cambridge, the real estate subsidiary of the $290 billion Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ).
“If you wanted to rent a place, it would have been in the private market. Unlike other developed markets like the US and Japan—Australia didn’t have a multifamily industry where would you would have professional managers of large real estate portfolios across the country,” Agethen told AsianInvestor.
Ivanhoé Cambridge
“We started investing into Australia’s build-to-rent multifamily sector in 2021, and it is currently a sector that a lot of high-quality players are trying to build out in the country,” he said.
The BTR niche in the Australian residential market has been apparent to institutional investors for long time, and demand continues to grow for these assets as more of the country’s residents are unwilling or unable to buy property. Some may also view long-term renting as an attractive option.
“Australia has a large renting population, historically, but it hasn’t had these institutionally run products. Most leases in Australia are six months, and tenants are generally at the mercy of landlords and can be kicked out at any time for almost any reason, so the need for this development has been apparent for a long time,” said Agethen.
“These are purpose-built apartments for renters, and they are designed to be affordable and provide residents with longevity of tenure. They are, most importantly, professionally managed by a corporate body as opposed to some emotional private market landlord that could become combative because they don’t want to spend on air conditioning.”
The build out of the sector has been a challenging environment for multifamily developers to capitalise on due to various input costs, including taxes at the federal and state level, said Agethen.
“That is changing as various state governments in Australia have started to incentivise the private sector to get into the space and provide housing,” he said.
PIPELINE OF BTR DEALS
As investor appetite for alternative asset classes has grown, along with tenant demand in Australia, the viability of BTR multifamily assets with reliable steady cash flow has been gaining traction with institutions. A pipeline of these projects over the past few years have proven the model works.
Ivanhoé Cambridge is particularly positive on the Australian student housing sector which is seeing a strong recovery this year, following full reopening of international borders in February 2022. The firm recently invested in Scape Australia’s fully integrated residential-for-rent platform, which has also received investment from other heavyweights like Dutch pension fund APG.
Also read: Ivanhoé Cambridge wants to double its allocation to APAC real estate
Cadillac Fairview, the real estate arm of the $242 billion Ontario Teachers’ Pension Plan, is also carving out its own piece of the Australian BTR sector and recently announced a $1 billion partnership with the global real estate investor Hines to develop these assets in the country.
Cadillac Fairview
“As we look to diversify our portfolio, the residential rental market is an attractive sector given the demand and opportunity to create an offering that resonates with local communities across the globe,” Karl Kreppner, Asia-Pacific senior vice president for investments at Cadillac Fairview told AsianInvestor.
“We're excited about the potential in Australia, as demonstrated by our joint venture with Hines, and we will continue to explore other markets in the region for additional compelling opportunities,” he said.
The partnership between Hines and Cadillac Fairview aims to develop, own, and operate best-in-class, international-calibre, purpose-built BTR assets across Australia and will be seeded by three BTR development sites owned by Hines.
STRONG FUNDAMENTALS
Hines has been investing in residential assets across Asia for over 25 years, with recent acquisitions including co-living assets in Hong Kong and residential assets in Japan, most recently through its diversified investment fund, Hines Asia Property Partners, according to Chiang Ling Ng, chief investment officer for Asia at Hines.
Chiang views the Australian BTR sector as one of the most exciting growth opportunities in Asia supported by strong fundamentals.
Hines
“The country has benefited from strong economic growth which has resulted in population growth and in turn has created white collar residents in need of housing in urban areas,” Chiang told AsianInvestor.
However, Australians are facing persistent affordability issues when it comes to buying property and it takes the average citizen around nine years just to save for a deposit, she said.
The housing conditions have created a landlord friendly market which often leads to a poor customer experience for the renters and tenure risks.
“We project the renter cohort in the country to grow at double the rate of household growth, and there is a great opportunity for us to institutionalise the housing product by leveraging our experience in US and Europe,” said Chiang.
Regarding the recent partnership with Cadillac Fairview, Chiang said the $1 billion in capital will be deployed across major urban centres in Australia and will target markets where her firm is able to execute on how it sees the sector evolving.
The global real estate investor will continue to seek opportunities throughout the greater APAC region to deliver new or upgraded products to cater to rising demand, she said.
“Debt costs are an impediment in many markets currently, but our ability to create value at the asset level remains our core competency across the APAC region,” said Chiang.