Build-to-rent sector poised for growth
Build-to-rent is New Zealand’s latest emerging property asset class, designed to service a new generation who can’t — or don’t want to — own their own home.
Essentially, BTR is large residential (often multi-unit, high-density) developments designed specifically for renting rather than sale. BTR properties are typically owned by institutional investors and managed by specialist operators and properties are only available as long-term rentals, usually three to seven years.
Development sector insiders believe BTR has huge potential to address New Zealand’s housing supply and affordability issues but it requires legislative support from the Government for the sector to fully realise that potential.
Bayleys head of insights and data Chris Farhi says the rise of BTR in New Zealand fits well with the wider transition to more intensive housing, particularly in the main centres, driven by rising house prices, less availability of greenfield land, and social change. Building consent data shows consents for apartments and townhouses have increased significantly in the past 10 years.
Some BTR stakeholders believe investment in the sector here may have been hampered in part by the Government’s 2021 decision to remove interest deductibility on tax for residential investors, and a lack of clarity around how the Overseas Investment Act (OIA) applies to BTR.
In August Housing Minister Megan Woods announced new legislation that will exempt new and existing BTR developments from the interest limit rules in perpetuity but the industry would like the Government to go further, particularly when it comes to attracting foreign investment.
Property Council NZ chief executive Leonie Freeman says more clarity is needed to bring investment into the asset class. “The fact a guidance note was issued is evidence that a problem exists. Our members are quite clear, a ‘guidance’ note is not legally binding.
“We know large institutional investment is poised ready for BTR. The recent announcement of an asset class is an excellent start by the Government but, naturally, we'd like to see next steps too.”
The council, a long-time proponent of the benefits of BTR to the housing market, is also pushing for access to depreciation for the sector.
“It should be simple to link OIA elements into the asset class, along with the introduction of depreciation. BTR is like a ‘commercial’ type of living and commercial assets already enjoy depreciation benefits, so why not BTR too?” says Freeman.
Resident Properties specialises in smaller-scale BTR projects in Auckland’s inner suburbs. Managing director Greg Reidy agrees with the Property Council on what’s needed for the sector to take off in this country.
“Build-to-rent businesses are, by nature, large and as a result global. Without opening it up to the rest of the world, BTR may be limited here,” he says. “It needs to be easy for overseas investors to get involved in New Zealand. We’re a small market so it’s not necessarily going to be attractive to overseas investors unless it’s easy.”
Kiwi Property is on track to open its first BTR apartments at Sylvia Park in 2024 with future developments intended for LynnMall and Drury.
Kiwi Property communications and investor relations head Campbell Hodgetts says with home ownership becoming increasingly unaffordable, BTR offers residents convenience, flexibility and stability.
“BTR has the potential to play an important role in helping to ease the housing shortage and offer renters an exciting new way of living.
“It’s still early days, but based on the growth of BTR offshore, we believe the sector has a bright future in New Zealand and we’re looking forward to being part of it,” Hodgetts says.