Property investment gain with a lot less pain

Can you imagine investing in a property that you can’t enter, occupied by tenants whose names you’ll never know and whom you will probably never meet?

You’ll never get demands to fix a leaky tap, replace a burnt-out light globe or repair a malfunctioning microwave.

Strata levies won’t exist, emails from bickering residents will never arrive, the petty squabbles of strata committees will be silenced and building defects and repairs will be someone else’s problem – if they exist at all.

You’ll have shares in the building rather than owning a flat, like the company title apartment blocks of old, except for one significant difference – whereas those buildings’ “boards” often banned tenants outright, this new breed of high-rise may not have any resident owners at all.

That’s one future of landlord life that was outlined in the AFR’s annual Property Investment conference held last week and at which the potential financial and social benefits of build-to-rent (BTR) projects were on many minds.

Last week also saw work start on what has been described as an innovative BTR apartment development in Melbourne’s inner west, into which $74 billion industry superfund HESTA has dropped more than $100 million.

The BTR sector is still something of a novelty in Australia – partly due to previous tax and planning laws that actively discouraged it.  But it’s a major success story in the USA where the asset class has grown from $US5 billion to $250 billion over 30 years.

“There’s a tremendous demand for the product,” Michael Streicker, president of the New York-based Sentinel Real Estate Corporation, told the AFR. Sentinel manages 28,000 rental apartments globally, including 1600 across six projects in Australia.

Large institutional investors are the lifeblood of BTR, but investment by HESTA is more than sound financial sense for its members, who work predominantly in health and community services, it will provide homes for some of those very people.

The apartment project in Macaulay Road, Kensington, is set to deliver 362 “mixed-tenure” apartments including affordable, social, market-rate, and specialist disability housing near critical public transport links and Melbourne’s major hospitals.

The project is being undertaken in conjunction with Super Housing Partnerships (SHP) which provides a vehicle for investors to make socially responsible contributions to the housing market while drawing together the levels of finance that make impactful developments possible.

So that’s great for industry funds, their investors and their future tenants.  But what about mum-and-dad property investors for whom individual houses and flats are the only option?

A growing build-to-rent sector could provide a new way to invest in residential property to provide income and build wealth, Mr Streicker said.

“Over time the … sector will develop to the point where individual investors can participate in ownership of build to rent schemes, and there are ways for them to gain wealth through that investment.”

“It should be a better investment because it’s professionally managed, there’s yield associated with our investments and obviously, there’s still appreciation. But also just from their perspective, it’s obviously a far less involved investment.”

In other words, no pestering emails or worries about enthusiastic amateurs running $100 million dollar blocks with no experience or training.

It would surely require some tinkering around bank loans, property laws and taxation, while buying and selling would probably be closer to the stock market than the Real Estate industry.

But just think, a hassle-free property investment that not only brings in a guaranteed income and capital growth, but helps solve the housing crisis, especially for essential service providers. Where do we sign?

This column first appeared in the Australian Financial Review.