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Kiwi Property Group expects residential rents to rise faster than commercial property rents as it transitions to becoming a residential landlord

Property / analysis
Kiwi Property Group expects residential rents to rise faster than commercial property rents as it transitions to becoming a residential landlord
Sylvia Park Apartments (Artist's impression)

Build-to-rent is being hyped as the next big thing in our housing market but the success or failure of the concept will likely hinge on the rate at which housing rents rise over the next few years.

Build-to-rent essentially involves large scale housing developments such as apartment complexes that are owned and operated as long term rental investments by a single owner, usually a major institutional investor.

In New Zealand residential developers usually sell down the individual units in their projects to either owner-occupiers or mum and dad investors and then move on to their next project.

Corporate investors have tended to avoid taking long term holdings in the residential property market, mainly because they have been able to get better returns from traditional commercial property investments such as shops, offices, warehouses and factories.

However that is starting to change and one of NZ’s largest corporate property investors – NZX-listed Kiwi Property Group (Kiwi Property), has announced it intends to develop two large apartment complexes in Auckland, which it plans to keep as long term rental investments.

Kiwi Property owns some of NZ’s largest retail and office properties including the mixed use Sylvia Park and Lynmall centres, the Vero Centre office tower in Auckland, plus the Aurora Centre and 44 The Terrace office blocks in Wellington.

The new apartment blocks will be built as part of the company’s sprawling Sylvia Park and Lynmall complexes.

However the financial information the company has released on the projects suggests they could be financially challenging.

Kiwi Property says the Sylvia Park apartment complex will cost $221 million to build and once completed and tenanted, will provide a net yield of about 4.5%.

As at March of this year the net yield on the main Sylvia Park complex was 5.5% while Lynmall was producing a net yield of 6.63%.

So the apartments will provide a significantly lower yield than the complexes they are being added to are currently providing.

That sort of scenario is precisely why corporate investors have tended to avoid residential property, and the financials are even worse than those numbers suggest.

That’s because the 4.5% yield figure Kiwi Property has given for its Sylvia Park apartments does not include any allowance for the value of the land on which they are being built, it is based purely on the build cost.

If the value of the land was factored in, the 4.5% yield figure would be even lower.

But you also need to consider that Kiwi is hoping to fund the cost of building the apartments by selling two of its provincial shopping centres, Northlands in Christchurch and The Plaza in Palmerston North.

Yield figures for The Plaza and Northlands aren’t included in the company’s latest portfolio overview. However a recent research report by Jarden described them as “high yielding” assets and previous Kiwi Property reports have given them yields above 7%.

So not only is Kiwi Property making a move into an asset class that is lower yielding than the commercial property assets it currently owns, it is selling much higher yielding assets to finance the move.

So what gives?

In a nutshell, Kiwi Property expects rental growth on residential properties to outstrip rental growth on commercial properties over the next few years, making residential a more attractive option down the line.

“While the initial returns [on residential] are perhaps lower than some of the [commercial] investment classes, over time you are getting an as good, if not better return,” Kiwi chief executive Clive Mackenzie said.

“What you see in high yielding assets such as the ones we have for sale is that their growth is very limited and there’s the possibility that it could be flat to negative as well.

“So you are getting a high yield now, but that may not go anywhere or the growth may be very limited.

Mackenzie believes rising house prices will also drive up residential rents as investors seek an acceptable return on their properties, and that in turn will make residential property relatively more attractive compared to commercial.

“We can see that by looking at the evidence over the last 10-15 years in New Zealand,” he said.

“Obviously that doesn’t necessarily mean it’s going to continue.

“But if you look at house prices and obviously a return on capital, rents will be driven by those prices as well.

“We are fortunate in the Auckland environment that there’s a housing shortage and a rental shortage, so there’s some great underpinning of this product going forward,” he said.

Kiwi Property is also more fortunate than most property investors considering residential developments, in that it already owns the land it intends to build apartments on.

Its Sylvia Park and Lynmall properties are large sites that are not yet fully developed.

Although apartments may initially provide a lower yield than office or retail assets on those sites, they will increase the total revenue the sites produce and the yields are expected to rise over time.

But Mackenzie concedes it may not have made financial sense to move into the apartment rental market if the company had to buy the land to build them on.

“Built-to-rent works where you have a halo impact and you own the land, so we have an advantage that very few other developers are able to tap into,” he said.

Government assistance would be required to make the numbers stack up so that build-to-rent would be attractive to corporate investors where they had to buy the land for their residential projects, he said.

“To be able to do it on third party sites or freestanding sites for want of a better description, we really need to see some settings from the Government to help get this asset class going,” Mackenzie said.

“The Government is considering some settings, but we haven’t seen anything yet that would persuade us that we could make it work in standalone locations.”

Whether the settings Mackenzie refers to take the form of tax breaks or underwrites or some other form of guarantee remains to be seen, but whatever form they take they essentially come down to some sort of taxpayer funded subsidy for private developers, and large ones at that.

Putting money into commercial schemes that would not be financially viable on a standalone basis raises the specter of other ill-fated, taxpayer funded schemes such as the Supplementary Minimum Price Scheme used to subsidise farmers in the late 1970s.

However, given that there is currently a legion of vested interests promoting the idea of some sort of Government support for build-to-rent schemes and this Government’s enthusiasm for pouring money into housing schemes that produce relatively modest results, we could well see the “settings” that Mackenzie refers to being introduced.

However whether such arrangements eventuate or not, Kiwi Property is likely to be pursuing residential development well beyond the two apartment complexes at Sylvia Park and Lynmall.

Mackenzie said it was “very likely” that Kiwi Property would also develop a residential component on its large land holding at Drury in south Auckland.

“That whole area is going to be the size of Napier in the next 15-20 years and we’ve got a significant land holding there,” he said.

“Not all of it will be commercial and we want to integrate residential into it. We may do some of it, and we also may look to third party developers to do some of it.”

There is one other aspect of residential property that may prove attractive to corporate investors  – its potential for significant capital gains.

Those who have been talking up the potential of build-to-rent schemes recently have made much of the fact that they have been a significant aspect of many overseas housing markets.

What is not usually mentioned is that it is also common for the corporate owners of build-to-rent complexes overseas to sell off the units in them to individual owners after a few years and reap a tidy capital gain.

Mackenzie said Kiwi Property’s intention is to retain the units it builds as long term rentals.

However he also confirmed that the apartments at Sylvia Park and Lynmall would have strata titles.

That would make it easier to sell them off individually, either to owner-occupiers or mum and dad investors, if the company decided to do so at some stage.

Either way, it’s keeping its options open.

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I wonder if renters thought Jacindas “ healthy homes “ was free ?


Yes I'm sure the tea towels shoved up my chimney justifies the $50/week rent rise.

Certainly not a cash grab.


Can't be a bad thing having hundreds of extra customers living right next to your shopping centre either.

Good on them, hope they make a good go of this. 


My sentiments exactly. And so much more efficient to have a profession manager for a complex than a whole bunch of individual private landlords. Surely the economics will make sense in the long run. 


Article misses one of the main core benefits to KPG (Kiwi property group) of the BTR projects: it vastly diversifies there revenue, which is crucial in the current environment where retail has been negatively impacted due to the pandemic. Also with a possible long term trend to working from home, gaining experience in operating a BTR portfolio means Kiwi has a viable back up use for their office portfolio which could in future be renovated into apartment towers.


Not one word in this article about any benefit to the renter as to why renting this type of property is more preferential than others.

To be clear, the way the BTR is being defined in NZ is not the true definition of what a BTR is.

At their worst, they are just a rebranding of standard new rental properties to make them more sellable, without changing anything fundamentally about them save maybe a slightly extended rental term. There is no best-case scenario in NZ, yet.

KP also makes the immediate case for some sort of Govt. subsidy to make them work. The same type of subsidies the Govt. gives to their own social housing but are removing from smaller investors.

In countries that have their housing &^*% together, this is what a true BTR means for the renter:

if the rental housing is built to a true owner-occupier standard, ie if the renter was in a position to buy in an open market they would still choose this type of dwelling.

The renter has a far longer guaranteed right of occupy (irrespective of who the owner is), plus rights of renewal (subject to use conditions). This is more similar to a commercial lease.

Also, the renter has the ability to break the lease at any time (with a small break fee).

There is very little difference between the cost of ownership vs rental costs.

But the main difference is this: The cost to bringing any property to market is far cheaper than our present system, ie whether an owner-occupier or renter, so both groups have far more discretionary income to invest in other asset classes, ie it is cheaper either to own or rent.

 From an investment perspective, it makes no difference to your financial position as to whether you buy or rent over your lifetime. Thus the benefit of renting gives you the security of long-term use to match your present lifestyle and employment position. But if you are offered better employment/career opportunities elsewhere, you can easily move to take advantage of that, are not ‘stuck’ in place as you might be due to you owning the property.

This flexibility of a true BTR gives you is one of the reasons they give for greater GDP in these types of jurisdictions.

NZ’s version of BTR is none of these things and is really just an investment opportunity given to big business and bigger Govt. departments on the backs of dysfunctional Govt. housing policy.


Good points.

The only guaranteed outcome is the landlord is an institutional investor who *hopefully* will be a better landlord. Another one is less likely to be turfed out because of a sale of the property.

I assume though that if govt offered incentives it would come with conditions re: the benefits you are describing.

Hopefully KP do also provide some of these benefits.


It isn't the landlord per se that makes them a better landlord, it's what the regulations set as the baseline that determines it. And we have a very low baseline.

Is there one 'institutional' anything you can name that has made something better? What the Govt. are doing here is giving themselves and large Corporates incentives they are denying to all the rest of us, on the false idealogy that it will somehow make things more affordable

The only thing that Govt. incentives have achieved in the housing market are cost increases for both owners and renters. Their 'well meaning' ideological speak is not reflected in real-life results, either historically or in the present.

They are really a 'the Emperor is wearing no clothes' Govt.



Kind of a shame that so many new builds are directed by what's attractive in terms of rental yields rather than the types of properties people actually want to live in. I'd expect low quality, limited public/common space, shoebox sizes, limited storage etc. Apartments could be so much better if they actually had long-term residents in mind in their design over squeezing 40%+ of their income out of them.


If you don’t like what others are building, then be the one to build the type of property you’d like to see built.

The government has put a lot of pressure on landlords recently (squeezing out the low yield lifestyle type rentals). This means that only high density higher yield rentals are still profitable / break even. If you feel like this is not what you want then write to your MP or vote to replace them. Under the current government settings it is likely that the only landlord who can afford to build the type of rentals you want is Housing New Zealand.


Ok brb I'll just pop down to Mitre10 and knock together a highrise apartment building. This is certainly better than mum and dad landlords in it for the 'lifestyle' (i.e. the young and lower income subsidising said lifestyle of their landlords), but I agree that a massive state housing building programme would be ideal. NZ's history shows that this is the way to fix housing crises - the private market cannot and will not do it.


Housing NZ aka kainga ora already lose money by the truckload. A further billion per year is handed to them by Winz as rent subsidies. In other words a "massive state house building programme" s would Not be ideal


It would be good to see more BTL, if that means professional, long-term managers who can provide stability of tenure. 

It does boggle the mind that the viability of these projects could be in question given how high rents are in this country. The costs of land and construction are just extraordinary.


If incomes don't rise, how do these deluded greedy developers expect their out-of-touch rents to be paid? 

Get real! We are being engineered into a massive societal change and people are existing on government subsdies (maybe that's why business confidence is so high - government is paying the salaries), and this situation is going nowhere positive.

Next crisis on the agenda is financial. So where will that leave all these housing developments. Empty!


The glaringly obvious is that the corp developers are realising the business word is being bleed dry (or working from home) and the only game left is govt guaranteed never to fail residential housing.

Some have yet to learn that without business we have no economy and no ability to tax and subsidise.  




I think rents should be adjusted upwards of 4 to 5% to make sense of current demand to work from home, increasing operational costs and general inflation.


I'm dead against the Government handing over cash to a big corporation.  It would constitute a subsidy.  I thought those days were over.  How about giving the Government an equity share like It has with three of the big power companies or perhaps lend funds by way of a mortgage.


Agree 100%, especially as any subsidy can create a further excess demand over supply (which the big monopolies can further create by limiting the release of supply) feeds directly back into the value of the land, which is all equity gain to the private companies.

And as noted… it helps the value of the Govts. real estate holdings, then being the biggest landlord in NZ, and all.