(Bloomberg) -- Blackstone Inc. would love to do more in Australia’s housing market, but factors like high taxes are holding the investment giant back. 

“You want capital to be able to flow freely in,” Kathleen McCarthy, co-head of the global real estate business, said at the Asia Pacific Financial and Innovation Symposium in Melbourne on Tuesday. “Government I think has a role in taking a look at and saying what are we doing to make it harder to build and attract capital to the sector.”

Foreign investors have been circumspect about deploying funds into residential build-to-rent projects in Australia due to the withholding tax rate applied to managed investment trusts - the most common entities used by foreign long-term property investors. This month, Australia began consultation on draft legislation for tax incentives that would spur investment and construction in the sector, an area McCarthy singled out as interesting because it’s so nascent.

Elsewhere, she said that despite upheavals in the global commercial real estate market, areas like logistics, data centers and high-end offices continue to see high growth.

Tim Church, Morgan Stanley’s co-head of investment banking in Australia, said the lower-grade office sector is going to be one of the biggest challenges for banks that are exposed. Flexibility toward going to office isn’t going to change, and refitting non-prime assets to residential or student housing may not make commercial sense, he said.  

“That’s a really problematic asset,” Church said. “We’re going to see some blood on the streets.” 

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