26.04.2024

Build-to-Rent (BTR) Basics

If the term Build-to-Rent is new to you, you are probably not alone.  Unlike countries such as the USA, UK and Australia where BTR is well established, the BTR sector is still emerging in New Zealand, with roughly 1,300 units completed and 3,400 further units in the pipeline as of 31 December 2023.[1]

What is BTR? 

BTR involves the development of large scale residential properties (made up of at least 20 dwellings) to be held by a single entity and professionally managed for long term rental rather than being sold on completion.  The aim of BTR is to provide a better renting experience for tenants and alleviate part of the housing shortage problem.

What are the benefits of BTR for tenants? 

BTR landlords must offer a 10 year tenancy agreement for BTR properties (including any renewals), but the tenant can negotiate a shorter term if they wish.  The tenant can also give written notice of 56 days to terminate a BTR tenancy at any time.

BTR tenancy agreements must outline the tenant’s ability to request property changes in accordance with the Residential Tenancies Act, including examples of permissible alterations.  Additionally, the agreement must address the landlord’s stance on pet ownership.  At the end of the tenancy, unless otherwise agreed by the landlord, tenants are responsible for restoring the property to its original condition.

BTR properties may also come with amenities associated with higher end luxury apartments, such as on-site gyms, residents’ lounges, on-site maintenance staff and cafes, without the hefty body corporate levies that would usually go along with unit title ownership.

What are the benefits of BTR for investors and landlords? 

Given the housing shortage in New Zealand there is likely to be ongoing strong demand for BTR rentals and higher rental yields.  With longer term tenancies there will be less tenant turnover and consistent cashflow, which may be a welcome change for developers who would otherwise have to sell the properties at the end of completion.

Qualifying BTR providers may be eligible for exclusion from the interest limitation rules, enabling investors to deduct interest costs against the income they make from a property.

The coalition government has indicated that legislation will be introduced to make it easier for overseas investors to invest in BTR.  For our summary of the Overseas Investment Act update for BTR developments, please see [OIO Spotlight:  Government issues new directive on foreign investment for build-to-rent housing developments | Hesketh Henry].

BTR vs other housing programmes

BTR should not be confused with Rent-To-Own or Shared Equity programmes, which aim to help individuals to achieve home ownership.  Rent-To-Own is a programme where approved buyers enter into a 5 year tenancy agreement with an equity provider such as the New Zealand Housing Foundation or Kainga Ora, with an option for the buyer to purchase a share of the property at the end of the tenancy (and gradually buy out the remaining shares over time).  Other shared equity programmes include Kainga Ora’s First Home Partner, which has been fully subscribed since September 2023.

Final thoughts 

The rise of BTR in the property sector holds promise for both tenants and landlords, offering enhanced living experiences and financial stability.  As the BTR landscape evolves, it is an exciting time for New Zealand’s rental market and may even provide a viable alternative to retirement village living. 

Hesketh Henry regularly assists developers, investors and owners with the development and sale of residential property.  If you have any questions about developing or buying residential property please get in touch with Richard Chen or your usual contact from our Commercial Property Team.

 

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

[1] Source Nationwide Map & Supply Tracker | Where Is BTR? | Build To Rent (buildtorentnz.co.nz)

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