A private developer is set to build Australia’s first “multi-family housing” apartment complex, a model where it keeps ownership of the entire building and leases out the units on long-term basis, up to 10 years, to tenants.
Family-run property developer Salta Properties will begin construction early next year of a 27-level Fender Katsalidis-designed apartment with 260 units on the waterfront in Melbourne’s Docklands.
Salta Properties managing director Sam Tarascio at the Docklands site which will become a hotel and apartment block. Photo: Pat Scala
It will also include a 170-room Intercontinental-run Hotel Indigo on the lower levels, the first bespoke Indigo brand hotel to open in Melbourne.
In a counter-intuitive move that runs against consensus views of a looming oversupply in the Melbourne’s apartment sector, Salta sees an opportunity to “create a new asset class in Australia” and diversify its $1 billion property portfolio with complete ownership of a large residential tower, including the hotel.
The model, common overseas where it is underpinned by institutional investors, is known as “multi-family housing” in the US and “build-to-rent” in the UK.
It has often been discussed in Australia as a way of engaging superannuation funds and institutional investors to provide secure rental housing and generate stable long-term returns.
Diversified property and construction giant Lend Lease told Tuesday’s Macquarie Bank Australian investor conference it was also actively considering new opportunities for residential multi-family developments as part of its $24.7 billion funds under management.
“It’s obviously a well-known asset in the US and Europe. It is actually something we have been looking at for quite some time. For us it is a diversification strategy,” Salta managing director Sam Tarascio said.
The new tower at 699 Latrobe Street will launch into a competitive market where consultancy group Charter Keck Cramer predicts 25,500 apartments will be completed in Sydney this calendar year, with a further 17,090 in Melbourne and 10,300 in Brisbane.
Concerns that overheated house prices may provoke a property slump prompted Australia’s banking watchdog APRA to place curbs on investor lending in December 2104, which it strengthened again last month with a new round of measures.
But Mr Tarascio said, while “on paper there’s a lot supply”, the statistics were not supporting predictions.
Historic low vacancy rates and strong population growth, coupled with the APRA curbs which would inhibit many mooted developments, were likely to drive up rents over the next decade, he said.
“We don’t subscribe to the theory that we have an excess of supply. Tenants are going to suffer from a lack of available stock and significantly increasing rental rates,” Mr Tarascio said.
Salta was also banking on a well-established shift in attitudes toward apartment living and the attraction of long lease terms in its well-located waterfront building.
“At the moment if you’re a tenant, your tenure is limited to a short-term lease and you’re at the whim of a landlord. We want to offer up to 10-year lease terms with known review mechanisms, be that a fixed review or CPI mechanism,” he said.
Few other private developers build and hold apartments as investments, apart from noted Sydney developer Harry Triguboff who has ownership of hundreds of units, mainly under serviced accommodation arrangements.
The $330 million Docklands tower will include nine levels for the Hotel Indigo and larger than normal apartment sizes.
Intercontinental’s chief operating officer for Australasia and Japan, Karin Sheppard, said the Indigo brand would adopt Docklands’ waterfront history into the hotel’s design-led interior spaces.
“We have a great opportunity to build a strong neighbourhood story around the maritime history,” Ms Sheppard said.
Mr Tarascio said the multi-family residential investment concept hadn’t gained traction in Australia because of lower investment returns, GST and land tax hurdles.
As the owner of the apartments, Salta will be liable for land tax.
“That makes the investment equation quite challenging because land tax is quite a large impost … [but] over a 10-year period, with patience the investment returns are far more acceptable,” he said.
Rising rents were likely to force governments to rethink policy around concessional land tax rates to increase supply of similar sorts of housing, he said.
“We think this asset class is something that in Australia will eventually become a significant asset class. It certainly is overseas.
“None of these funds like to be first. It takes a private developer such as ourselves using our own money to really blaze the trail.”