July 15, 2024

Vagmare.com

The Intersection of Information and Insight

the role of BTS and BTR markets

3 min read

Australia’s housing crisis has been a topic of intense discussion and concern over the last year.

In an ambitious response, the Federal Government, along with the New South Wales and Victorian Governments, have set targets to deliver a substantial number of new dwellings over the next decade.

But are these targets feasible considering Australia’s historical completions and current market conditions?

The challenge of meeting housing targets

The Federal Government’s National Housing Accord aims to deliver 1.2 million new dwellings over five years (240,000 annually) from 2024.

NSW and Victoria have set targets of 750,000 and 800,000 new dwellings over the next decade, respectively.

Property consultants Charter Keck Cramer’s recent assessment highlights that these targets, while reflecting the demand for housing, are ambitious compared to historical completions and the current state of the property market.

Australia’s peak housing supply year was FY2017, with just under 220,000 dwellings.

In comparison, NSW and Victoria achieved their peak in FY2018 and FY2017 with 73,000 and 67,000 dwellings, respectively.

The new targets require a significant scale-up in construction, echoing the housing construction boom of the 1950s and 1960s.

Understanding BTS and BTR markets and the role of investors

Build to Sell (BTS)

BTS projects involve developers selling apartments off the plan (OTP) to fund construction.

Historically, investors, both domestic and international, have been key purchasers in the BTS market.

Charter Keck Cramer notes that investors account for 50-75% of BTS apartment sales, indicating their crucial role in funding these projects.

Build to Rent (BTR)

The BTR market, an emerging sector in Australian real estate, entails developers renting out completed dwellings and potentially selling them as income-producing assets later.

Unlike BTS, BTR projects don’t rely on Off The Plan presales, but need to demonstrate financial feasibility for funding.

The role of investors

The BTS market’s reliance on presales to investors is significant.

In contrast, BTR projects need to be financially feasible upon completion to attract funding.

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