Tax break for ‘build to rent’ investors

Landlords will be encouraged to offer tenants 10-year tenancies and to allow tenants to keep a pet or put a painting on a wall through a tax carve-out for ‘‘build to rent’’ investors.

Housing Minister Megan Woods said a bill would be introduced to Parliament this month which would allow owners of new and existing build to rent properties to claim interest as an expense on their tax returns provided they meet certain conditions.

Rules introduced last year are phasing out most landlords’ ability to deduct interest expenses from their income for existing properties.

‘‘We recognise the big role the build-to-rent sector can play in filling a gap in the general rental market by increasing the supply, density and diversity of housing.’’

Build to rent properties are typically multi-unit developments, like apartment buildings, that are funded and owned by institutional investors. They are built with the intention of being offered to tenants rather than buyers.

Property Council chief executive Leonie Freeman said the changes to interest deductibility rules for these properties could be a key turning point in unlocking the potential of the sector. ‘‘Build to rent will transform the experience of renting in New Zealand. Property Council research shows that our members stand poised to deliver over 25,000 build to rent homes in the next decade, with the right policy settings,’’ Freeman said.

To qualify for the tax benefit, landlords will need to offer tenants the option of a 10-year tenancy carrying a 56-day notice period – but tenants will not be required to accept it.

Owners of build to rent properties will also need to offer more flexibility about what tenants can do in the property they rent.

The property will need to have a personalisation policy that goes beyond what is required by the Residential Tenancies Act. This could include allowing tenants to stick a painting on the wall or have a pet.

Woods said this would enable people to settle and personalise their home, and reduce how often they had to find a new place to live.

‘‘We believe security of tenure is critical for people who are renting.’’

Woods made the announcement in Auckland at Kerepiti, a joint venture at Hobsonville Point between Ngāi Tahu Property, NZ Super Fund and New Ground Capital which contains 208 homes.

The build to rent business model emphasises providing an attractive experience for renters so that the buildings are continuously occupied. Build to rent investments attract investors like pension funds which have a mandate to invest in low-yield, low-risk investments that deliver a stable return over a long period of time. The sector is relatively new in New Zealand but growing in Australia, and wellestablished in both the United Kingdom and the United States.

Under the new legislation build to rent properties will be defined as a single development with 20 dwellings or more, on a single parcel of land – or multiple land parcels where they border one another.

Woods acknowledged some properties currently being marketed as build to rent might not qualify for the exemption from interest deductibility rules but said there would be a transition period to allow them to change their offering to better meet the standard.