If you're contemplating downsizing, renting instead of buying might be on your radar. Right now, build-to-rent is generating quite a buzz, particularly among retirees and those seeking an affordable housing option. So, what exactly is build-to-rent, and how does it differ from conventional renting?
Build-to-rent is a housing concept that has gained traction worldwide and has recently made its way to Australia. As the name implies, in this model, the developer constructs homes or apartments, maintains ownership, and rents them out. Unlike other property developments with a mix of individual owners and tenants who rent from private landlords, build-to-rent projects are entirely owned and managed by the developer.
These developments often offer a host of amenities reminiscent of retirement villages, including dog parks, BBQ areas, communal gardens, swimming pools, cinemas, and gyms. What sets them apart is that the entire development is under the developer's control, allowing for greater flexibility in terms of lease duration, lower or no bond requirements, permission to have pets, decorating freedom, and the ability to change residences as your circumstances evolve. Some build-to-rent arrangements even cover your white goods, organize social events, and provide access to cleaning and maintenance services.
If you're currently a homeowner receiving an Age Pension who is thinking about downsizing into a build-to-rent property, it's essential to understand the potential pension implications before making the move. In moving from your own home to a build to rent property you are moving from being a homeowner (with your home being an exempt asset) to a non-homeowner. As a non-homeowner, your asset test threshold is higher, but only by $242,000. So if you sell your home and receive more than $242,000 there could be significant drop or even loss of your pension. The Age Pension Asset cut-off is $909,500 for singles and $1,245,000 for couples, if your assets exceed this amount you are not eligible for an Age Pension.
If you do receive the Age Pension, even if it is only a small payment, then you can be eligible for rent assistance. Rent assistance is fairly generous payment, calculated at 75 cents per dollar of rent you pay above the threshold. The other good news is that the rent thresholds are low relative to most rents - $72 per week for singles and $116 per week for couples. There’s not many rents you can find for that amount or less which means most people qualify. Of course rent assistance is not unlimited. The most you can receive is $185 per fortnight if you are single and $174 per fortnight if you are a couple. To put this into context if you are a single person paying rent of $195 per week you would be eligible for $185 per fortnight in rent assistance, couples paying rent of $232 per week would be eligible for $174 per fortnight in rent assistance.
Aside from the pension-related considerations, it's crucial to understand that build-to-rent arrangements differ from homeownership or the security of tenure typically associated with retirement villages. In strata developments, an owner's corporation handles day-to-day operations and maintenance of the property. In retirement villages, a resident's committee often represents the residents' interests. In contrast, build-to-rent is typically controlled by a single owner, which can make management more straightforward but may also present challenges in controlling rent increases.
Build-to-rent is often promoted as an affordable housing option, and governments across the eastern states are offering incentives to developers to provide some or all of the homes in a development at a lower cost. However, it's important to note that not all build-to-rent properties are low-cost. In some cases, rents may exceed the rates in the private rental market due to the array of amenities and services offered.
If you're contemplating downsizing, it's important to review the contract for your chosen accommodation and make sure that you are clear about your rights, responsibilities, and costs for the duration of your stay (when you moving in, while you live there, and after you leave). Doing so will help you avoid any unwelcome surprises down the road.
Rachel Lane is author of Downsizing Made Simple with fellow finance expert Noel Whittaker, the new edition is now available to pre-order online. The companion website is there to guide your downsizing journey with great information, tools and easy-to-use resources.
