As part of the plan to improve housing supply and the rental market in New Zealand, the Overseas Investment (Build-to-rent and Similar Rental Developments) Amendment Bill (Bill) was introduced to the House in June.
The stated purpose of the proposed amendments is to remove barriers to overseas investment in large scale rental developments, including build-to-rent housing. Chris Bishop stated, “We need to take every option available to increase the supply of housing in New Zealand, and Build to Rent is one of those options.”
Build-to-rent (BTR) refers to medium to large scale residential housing developments that are built to provide long term rental accommodation. Investors are typically looking for stable returns and capital appreciation over a longer period. As a result of this long-term view, the builds are generally of better quality and give renters more security of tenure.
As background, in 2018 the Overseas Investment Act 2005 (Act) was amended to classify residential land as a ‘sensitive asset’; with the object being to restrict foreign purchases of existing housing stock (“the foreign buyers ban”). However, where an overseas investor wishes to purchase residential land to develop new housing, a pathway is provided under “the increased housing test”. This pathway typically requires that investors divest their interest in the property after its completion (the “on-sale requirement”). An exemption to this rule
exists for large developments with rental arrangements, such as BTR, where 20 or more dwellings are to be built.
Although the Act might appear to work for BTR developments, industry stakeholders maintain there remain some significant barriers to overseas investment in the BTR sector in New Zealand. For example, for overseas investors looking to enter the BTR sector, one of the key considerations is that there is a clear path to divestment. As the investment required to finance large-scale BTR developments resides largely overseas, likewise, the pool of potential buyers for an existing BTR is primarily overseas. Under the Act, for an overseas person to purchase existing housing assets, consent is under the ‘benefit to New Zealand’ test, which relies on Ministers judging whether an investment meets the criteria. The uncertainty around what Ministers’ views on the sale of assets to overseas investors will be, come time to divest, and its effect on the potential market for purchasers, makes the initial investment in developments such as BTR less attractive.
To give investors greater certainty as to expected outcomes, and to better support the growth of large rental developments, including BTR, the Bill would amend the Act to provide a new streamlined consent process that allows overseas investors to purchase large rental developments, providing they meet the “large rental development test”. This test streamlines the consent process where an overseas investor acquires an interest in residential land that includes one or more buildings with 20 or more dwellings; and at least 20 of the dwellings are available for residential tenancy. It is also a condition that the overseas person (and certain related persons) cannot occupy the land.
The Bill is with the Finance and Expenditure Committee, with their report due back Nov 1, 2024.