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Is ‘Build to Rent’ Viable in Australia?

Joe Russo Caydon

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Real estate developer Joe Russo has over 15 years’ experience developing properties. The principal of Caydon Property Group, Joe Russo was recently featured in the Australian Financial Review, where he discussed the viability of "build to rent" in Australia.

"Build to rent" is a model where developers build properties with the aim of renting them out over the long term rather than selling them to individual homeowners. While the trend has caught on in the United States and the United Kingdom, the model, according to Russo, will find difficulty becoming mainstream in Australia. Here’s why:
1. Selling is just more profitable. In the current Australian real estate market where valuations are high, it makes more economic sense for developers to sell properties than lease them for the long term.
2. Financial maturity. Australia does not have the deep financial market that’s present in the United States. Lenders in the country do not offer 30-year loans for renters on a loan-to-value ratio as high as 75 percent. In addition, Australia does not have the rich pool of commercial buyers that will gravitate toward real assets with a 5 percent yield.
3. Australians want to own their homes. Unlike Americans who are comfortable moving because of school or work, Australians have a deep personal connection with their hometowns and often desire to own their homes.