Build to rent, or BTR, for short, was a term first coined in the United Kingdom during the peak of the global financial crisis back in 2008. Essentially the idea was to allow big institutional investors such as pension funds to invest in the construction and operation of large residential developments built with the intention of being rented out instead of the usual ‘selling off the plans’ ideology. These large institutional investors are not out there looking for big returns, they are more concerned about the stability and longevity of their investment.

Looking overseas, we can see that these developments tend to be high-quality, and they offer long-term leases for renters. Since developers are retaining these dwellings, higher quality, longer-lasting materials tend to be used. With design elements that have renters in mind and amenities that tick all the boxes, these developments often have close to 100% occupancy and therefore allow for a very stable and long-term investment strategy.

Occupants of these buildings benefit from knowing that their lease is long-term with no risk of the investor selling. Rents tend to be higher than properties on the open market as the buildings cater specifically to renters and often providing facilities such as gyms, pools, dry cleaning and valet services. Rent increases are consistent and in line with market trends, allowing renters to be more prepared for changes and budget accordingly – therefore reducing vacancy for investors, and keeping their returns stable.

There are plenty of these developments around the world, UK, America, Australia. They also starting to pop up here in New Zealand with a few in Auckland and even Queenstown, and coming either furnished or empty, but fully compliant with lease terms of usually around 10 years. Build to rent is a great way for New Zealand to bolster its housing stock. It will help alleviate the pressures on the housing market both in the renting and selling spaces, because it will finally offer people a proper alternative to buying a home, as New Zealanders will for the first time be able to be certain of their rental and know that its theirs long-term. Armed with this knowledge, renters are likely to make it their home and look after the place more than a short-term renter would. This all sounds great, and you would have thought that by now there would be plenty of BTR apartment blocks popping up. But when the Government first introduced the interest deductibility changes, it made this type of property investment unfavourable for investors who needed to borrow. With the current time limit of interest deductibility set to 20 years and BTR developments not being identified as its own asset class, it just hasn’t been viable as with many BTR developments having an operating lifetime of at least 50 years – meaning developers and investors have been wanting change.

On the 12th of August, Housing Minister Megan Woods, announced BTR properties would be able to make interest deductions indefinitely- finally making BTR developments viable and of interest to investors here in New Zealand. The delay to this announcement was due to defining exactly what a ‘build to rent development’ was. The definition the government have now settled on is a single development of 20 or more units where tenants can get a 10-year lease if they want one. It is great that BTR is now defined as its own asset class, and as such is now more viable here in New Zealand. The only thing left is for Minister Woods to consider allowing overseas investment into this new asset class; this would allow long established international pension funds to invest. This would be a great benefit as these funds tend to invest with equity, not debt, meaning they are happier with lower returns. It also means renters could be assured that there will be stability to their rental price, thus making these types of properties popular to a large proportion of the rental market.

With this recent government announcement and hopefully more to follow, we can expect to see many developers and large investment funds form relationships to construct many townhouses and apartments that have a renter’s lifestyle in mind. Build to Rent may become the future of New Zealand’s’ housing.

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