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The $300 Billion Multifamily Proposition in Australia.

According to a new CBRE thought leadership report, institutional investors could own $300 billion worth of Australian residential assets in the next few decades if the multifamily sector grows in the same way as the US. For sale Qatar | Lusail Properties
Multifamily refers to multi-unit residential buildings occupied by a single person, also known as build to rent. The asset class is gaining traction in the UK and has been gaining traction in Australia, with the potential to change the funding mix for residential projects dramatically.
Stephen McNabb, CBRE's Head of Research for Australia, said the multifamily sector accounted for about 15% of properties in the US with five or more units, a position achieved after 25 years of development.
In general, the sector accounts for 20 percent to 25 percent of the $2 trillion in institutional property investment in the United States, placing it second only to office property in terms of investor allocation.
"If the economy here progressed to the level of the US, up to 5% of the country's dwelling stock by value might be institutionally owned in several decades," Mr. McNabb said.
"That equates to around AU$300 billion in residential assets or around 300,000 apartments in today's dollars."
The full version of CBRE's report, which will be released next month, highlights how the build-to-rent sector's applicability will continue to grow in Australia as the market becomes more comfortable with four main propositions.
Acceptance of build-to-rent as a new product model, appreciation of the asset class as an investment proposition, comprehension of the consumer value proposition, and recognition of policy factors are among them.
"Investor and customer objectives have combined to make market dynamics more welcoming of build-to-rent residential than in the past," Mr. McNabb said, citing shifting investor perceptions as a key factor.
"Required returns are decreasing across the board, and investors are increasingly focusing on investments that provide income stability and steady growth while minimizing capital risk. Residential real estate also provides a consistent, long-term income stream at a time when investor demand for longer-term assets is growing as the population ages. The opportunity to de-risk production businesses and spread returns over the life of the "end-product" makes for an attractive risk-adjusted proposition."
If the build to rent model is to succeed, higher service levels would be crucial in attracting tenants from the current private rental sector, according to CBRE's report.
It also points out that, while build-to-rent will relieve pressure on existing housing stock, it will not be a panacea for housing affordability in and of itself.
"However, there would be economic benefits in reducing household debt, as well as the ability to turn funding of the sector away from conventional intermediated finance for construction and end-product purchasers," Mr. McNabb said, adding that the federal government will need to examine how zoning and tax reforms would provide clarity to the asset class.
According to Simon Cowley of CBRE's Debt and Structured Finance unit, funding would be another important factor.
"The capital stack would be built primarily by equity rather than debt in the early phases," Mr. Cowley predicted.
"This will involve institutional investment through forward funding or forward commitment, joint ventures with developers, and collaboration with asset managers with experience in this field. This would be the fastest path to scale for institutional investors, and through working with expert fund managers, they will achieve efficiencies in developing a platform/brand and begin to mitigate the gross-to-net deductions of managing these ventures."

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