Builder-owner models – Investing with a Special Tax Effect
The builder-owner model makes it possible for private investors to enter subsidised residential construction – with tax benefits, low-cost financing and stable income. Capped rents minimise the remarketing risk, while attractive after-tax yields can be realised.
The builder-owner model gives private inves- tors an opportunity to invest in subsidised residential construction – through the purchase of a co-ownership share with land register security or participation in the limited partnership that owns the prop- erty. This form of real estate investment combines tax benefits with long-term value appreciation and is an attractive alternative for capital investment. Favourable financing conditions and tax benefits make interesting after-tax yields possible in spite of rents that are capped by legal benchmark regulations. Below-market rents minimise the remarketing risk and make the builder-owner model particularly stable. A frequently underestimated but decisive factor for the overall success of the investment is the exit: Investors have the option to hold their shares over the long term and generate rental income or can
sell their shares on the secondary market. For private investors, this creates additional investment alternatives with attractive opportunities and stable income. The main reason behind this comeback is the growing demand for affordable housing because builder-owner models are specially designed for this segment. Rents are subject to strict requirements during the first 20 years: The apartments may only be rented at the benchmark price (without a location premium) or, as a maximum, at a cost-covering price. In spite of these restrictions, investors can realise an attractive after-tax yield of roughly three to four per cent. This is made possible by the combination of regulated but low-risk rental income and government subsidies. A significant part of the financing comes from low-cost public loans – here, conditions vary depending on the province and in
Vienna, for example, the fixed interest rate is only one per cent.
Investors also profit from tax benefits: Instead of standard depreciation over 67 years, the property can be depreciated for tax purposes over only 15 years. This results in tax losses which investors can utilise directly in their tax assessments and further increases the profitability of the investment.
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