As Western Australia continues to grapple with a chronic housing shortage and a low rental vacancy rate, people are turning their interest to property development to see how they can capitalise on the conditions of this unprecedented market. The trade war erupting in the US has also made investing in property a more attractive option to the share market which has seen significant volatility since President Trump came into power. It is the perfect storm and it’s looking good for those looking to invest in property.
WA is facing a considerable housing shortfall. Estimates vary, but it is clear that there aren’t enough homes to meet the current demand. One estimate suggests we are short approximately 20,000 homes. The Australian Bureau of Statistics building activity data confirms there is no end in sight to the current housing crisis. There were 1,400 less home starts in 2024 compared to 2017 and overseas migration is up 950% up from 1,600 8 years ago to almost 17,000.
“A really good option in the current market is the build to rent model,” said Summit Homes Senior Development Architect Quentin Lau.
Quentin Lau - Summit Homes Senior Development Architect
So what is build to rent? Build to rent is a property development term for people that have land, build a home, but instead of ‘flipping’ that property to make money by selling shortly after the build is complete, buyers hold the property for long term rental return. Given the cost of land, this development strategy is becoming popular among clients.
“Apart from generating a rental income, you have tax deductions and at the same time, you are gaining capital growth. Over the next few years if there is a continued shortage of properties, there will be more capital growth. This is certainly what current predictions are,” Mr Lau added.
The build to rent model will become more attractive as the Reserve Bank lowers interest rates. Build to rent works well with low interest rates and high demand for properties with low stock levels which are the conditions that have been set in motion for WA. When asked how to assess whether the build to rent model is a good option, Mr Lau suggests looking no further than your own back yard.
“There are so many people that are living on properties with the ability to subdivide and they may not know it. It is likely that you don’t even need to go out and buy the land. If the land is already available and mortgage free, your investment is only a small outlay to subdivide and build to rent. Why not utilise the back of your property to fund your retirement or as a first step towards building a property portfolio,” Mr Lau said.
Another build to rent option if there is no subdivision potential is to look at a granny flat which provides a very high return on investment given there are no subdivision fees and charges. According to Mr Lau mature clients will usually opt to move into the granny flat and rent out the main house to generate a passive income to set themselves up for a comfortable future.
Despite building commencements being tipped to rise by almost 60% by 2029, the labour resources required to meet government housing targets are currently not in place and therefore achieving equilibrium is out reach making property a good investment opportunity.
“We have the perfect conditions from an economics point of view as interest rates are on the decline; we have an excellent planning framework in place because lots of local governments have rezoned to allow for subdivision and granny flats can now be rented out,” said Mr Lau.
When asked to comment on the ideal areas to consider a development project Mr Lau said in today’s market there are no ideal areas as tenants are willing to go out further because there is simply no where to rent.
The build to rent model is not exclusively for homeowners with blocks of land, with land developers increasingly looking at the model, representing a change in how they do business. Historically, land developers would follow the set process of buying, developing and selling land. This formula has changed with land developers now retaining some of the land to build on and subsequently rent out as a result of the conditions of the current market which includes good rental yields, a low rental vacancy rate, good capital growth and taxation benefits.
With a global trade war simmering Mr Lau predicts the volatility of the share market will also attract more people to property investment as a form of wealth protection.
“Property is the best asset at this time, even if we do go into a recession. People still need somewhere to live in a recession. People don’t need to invest in shares but they do need to invest in a roof over their head.”
*Please note, this article is opinion based and does not constitute legal or financial advice.
