The Government has published guidance aimed at clarifying that New Zealand does welcome foreign investment in purpose-built rental housing.
Land Information New Zealand has provided this guidance under the Overseas Investment Act, further to criticism from within the property sector that unclear rules are disincentivising investment in build-to-rent developments.
Under the Act, foreigners can’t buy residential property in New Zealand, but can apply for consent to develop residential land to increase housing supply.
The Act already makes provision for build-to-rent developments by saying developers are exempt from a requirement to on-sell new residential dwellings they build if they build 20 or more, and intend to provide a “share equity, rent to buy, or rental arrangement”.
The Act doesn’t however specifically reference “build-to-rent”.
Housing Minister Megan Woods expects the guidance to clarify there aren’t impediments to foreigners developing purpose-built rentals in New Zealand.
She said the Government is still looking at what more it can do to support the build-to-rent sector. It has been working with an industry group on the matter for some time. Woods said she would have something more to say on the matter “soonish”, but couldn’t put a date on when.
The Property Council advocacy group believes legally defining build-to-rent as its own asset class would be the first step towards creating policy that makes way for it.
However, the Property Council had also hoped this would see build-to-rent get special tax treatment, making it completely exempt from the new interest deductibility rules, for example. The Government has already said no to this.
“If we’re going to recognise it [build-to-rent] as an asset class, we have to understand how it’s fundamentally different to other rental properties,” Woods said.
“What are the other outcomes that we’re getting from it? That’s the ongoing work.”
Below is an overview of the build-to-rent guidance from Land Information New Zealand. See the guidance in full here.
“Build-to-rent developments of 20 or more dwellings are specifically provided for in the Overseas Investment Act 2005 (the Act).
“New build-to-rent developments of 20 or more dwellings may have access to a streamlined pathway for consent under the Act. The rules that apply will depend on the type of land being acquired. Investors must be in the business of providing residential dwellings, but there is no requirement for them to have previously completed a built-to-rent development.
“New build-to-rent developments of fewer than 20 dwellings will be eligible for consent only if they are not built on residential land.
“Mixed use developments may be able to rely on different consent pathways for different parts of the development.
“Different rules will apply to the on-sale of an existing built-to-rent development.”
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64 Comments
Well it's the last day of Q1, the first quarter, 3 months into 2022.
RE Agents, Media, and Corlogic are revealing 15-19% decrease in Home Prices.
Media and Economists warning of 20k people leaving NZ when borders open.
Desperate RE Agents playing Saxophones at open homes and offering thousands in Vouchers.
Developers going bankrupt.
Record speed in Interest Rate Rises.
Runaway Inflation.
War creating Chaos in the economy
Covid Creating Carnage
Banks selling 6% Mortgages
Listings Rapidly Piling Up.
And people get upset when I say the Facts below. Or should I say the Vested People ?
7% interest rates Guaranteed this year. -30 in Home Prices by December this year a Certainty.
https://www.stuff.co.nz/life-style/homed/housing-affordability/12819683…
I like your posts and agree with much of what you say. But if I was you I would refrain from saying those outcomes are a 'certainty'.
Very few things are certain with markets, other than basic dynamics such as that they are cyclical. Within that certainty (that there are cycles, ups and downs) we can never be certain as to the extent of the market movements.
Perhaps you could say it's 'likely'.
In my view I wouldn't say it's likely, but I'd say it's 'quite possible'. I'd say price falls of 10-20% are likely.
PS. When I talk about price falls I'm talking about the HPI, and across the whole market.
Most of this stuff has already started happening. There are fire sales on developments right now because buyers can’t settle. The government have successfully tanked the housing market with tax and regulation they don’t have a clue about and have engineered rising interest rates with their out of control spending. The wider economy will be next.
... a generation of our best and brightest will be " tanked " too ... I cannot see young people hanging around Godzone when an average house costs a $ million ... they'll be donkeys years ponying up the $ 200 000 deposit ... they'll be off , to Australia , or beyond ...
Decades of greed and stupidity have got us into a tight spot , painted ourselves into a corner ...
The truth is though that the housing market needed to be 'tanked'. Housing is too expensive and has created a wildly imbalanced economy that is costing everyone far too much.
The fact the the Government is saying it is welcoming in foreign developers to build rentals is just another way for them saying that they are unwilling to do what is necessary for the benefit of all kiwis, their constituents and the people who actually voted for them. Indeed they are really saying as others have pointed out here, that they prefer to prop up the housing ponzi than to let it fall.
Xenophobic legislation like the foreign buyers ban isn't part of some grand masterplan, it's Trumpian populist nonsense that vilifies New Zealand immigrant communities. Government had no idea what the negative impacts would be or the red tape it would pile upon businesses.
House prices going down a third while interest rates double don't make anything more affordable, despite the rhetoric about Debt To Income multiples.
The real impact will be when people start losing jobs and houses, bankruptcies and suicides spike and we see more New Zealanders sleeping on street corners in the middle of our major cities.
"and we see more New Zealanders sleeping on street corners in the middle of our major cities."
That has become acceptable since 2000 roughly. Prior to that homelessness had been an unacceptable failure and stain on NZ society and Government policies. In my view it remains unacceptable, but people decry the policies that would fix it.
I didn't argue that foreign investors shouldn't be allowed to invest in our housing, although i think they should be blocked, not because I'm xenophobic, but because i think Kiwis should own NZ not anyone else. I did mark the Government's statement for what it was though.
From this specific piece of legislation there is a declaration required on every borrowing event for lenders, then one for lawyers to go to LINZ and one for IRD.
If you’re wanting examples in general I can give you a dozen more about how my industry is drowning in red tape since the current government was elected (CCCFA is probably the most recent one).
It’s done nothing to solve the housing crisis in New Zealand but has created more bureaucracy, inefficiency and led to worsening productivity.
Can you Guarantee that HouseMouse ? Some things in life are actually Guaranteed, The Pendulum Always Swings is Guaranteed. There are actually many natural factors in this Universe that is Guaranteed. Its just the way this world was made. Was it a mistake interest rates went so low because certain people did not know what they were doing ? Or did they know exactly what they were doing ? You would be very surprised to see what is guaranteed to happen next. But that is enough for today !
Facts are facts. Specuvestor loved to quote em on the way up. The divergence of OCR and interest rates is simply a joke and enabling a super profits for the trading banks. Well done Labour. The key question is whether Mr Orr as independent as everyone claims, or is he following the play sheet from international central bank shareholders aka .25% changes.
2022: you have one major miss calculation.
Interest rates will hardly get off the ground before they'll be reversed.
0cr 2.5 max. Mortgages longer term could hit 6% but short term will have under 5% options throughout 2022.
15% house price fall; that would be enough to shut down all the pumping construction (already has) and recession here we come.
RBNZ is ahead of the Fed in hiking, plus neither Simon or I have said the RBNZ *won't* hike, it's the quantum of the hike we are questioning.
And BTW, I also don't think the Fed will hike as much as they have indicated.
Anyway, I'll leave it there - no matter what you or I think today, we will only know the answer through the passage of time.
Why are foreign investors getting encouraged to build rentals when existing landlords are getting financially forced out with the gradual removal of interest deductibility? Over the years manufacturing has been pushed overseas, 90% of canned food sold here made overseas when we are a farming nation. It seems all we have left is to go to Bunnings to over renovate our properties and sell them to each other for ever increasing prices. Now it appears that final bastion of industry is being taken away too.
I suggest that this is a good question. Is there some sort of implied protection that would be forthcoming for such an investor? Else why would they do it? Surely what is apparent to observers in NZ is also apparent to observers outside as well? If for example, the investor was Chinese, would the government be prepared to let them fail if and when the Chinese Government came asking questions?
Under the Act, foreigners can’t buy residential property in New Zealand, but can apply for consent to develop residential land to increase housing supply.
But foreign owned banks can create NZD credit to finance both activities and repatriate rentier profits back to Australia.
The decision of the Bolger government to hastily off load the BNZ was shortsighted. Recall at the time the BNZ, while obviously smaller overall than its Australian based competitors, was nevertheless the largest retail bank within NZ. To my mind bailing out the BNZ would have been more appropriate and worthwhile than subsequent bail outs of Air NZ. Still there was scandal, deep in vaults to be concealed not withstanding Winston Peters best efforts to expose, and that sealed the fate.
If you're looking for a little extra security for your savings in one of the big-four banks in New Zealand, you could note that the ASB's parent bank CBA, and the BNZ's parent bank NBA, have performed far, far better in Australia than the parent banks of Westpac and ANZ. according to recent news releases. Anyway, that's the way I interpret this news, but then again it may have no bearing.
So they can’t buy the land in the first place, but they can apply for resource consent to develop land they don’t own and go through a months long overseas investment act process to seek approval. I wonder how many homeowners will accept a 6 month due diligence clause like that when selling.
Isn't that a good thing? What we are in dire need of is brownfield development, more housing close to services, transport and amenity. Not a whole bunch of new suburbs out in the wop wops that will require everyone to drive everywhere to do anything when gas prices are over $3 and we're going to be taxed more to pay for all the new roads maintenance?
This could be a recipe for absolute disaster. If you build apartments in NZ as a commercial investment, you literally HAVE to set rents at a level that are unaffordable for the majority of the population. The maths is very straight forward.
So, commercial rentals basically lock in high rents - and the more apartments go up, the more market power the commercial operators have, and the more money flows from renters (+ Govt subsidies) to overseas asset owners - as Audaxes notes above. It's the equivalent of importing a service at an inflated price - with Govt funding subsidising the drain on our economy. Madness.
A far, far better model is for Govt to subsidise (or pay for) the build of rental accommodation (and associated infrastructure), and then pay housing management organisations to run the scheme at affordable rent levels. Priority can then be given to the people that cannot afford to live near where they need to work - e.g. new graduates, apprenticeships, nurses, teachers, essential workers etc.
Why would they build here if they have a 30 -50 year net ROI but they can only deduct their interest expenses for 20 years?
Do rules that relate to the sector ever take effect from a date that is prior to the date of royal assent (retrospective legislation) ? Would this be high levels of risk in a sector where you need stability for 30-50 years at a time to turn a profit? Are there comparable jurisdictions where the rules don’t change so rapidly and/or interest can be deducted for the life of the asset? When considering investing what advantage is there to choosing NZ over comparable jurisdictions where housing is encouraged as opposed to hammered?
Kiwi landlords are just as bad but hey, at least the rental income of a Kiwi landlord stays in our economy (at first), and then gets spent on an overseas vacation or at a Ford dealership.
I am being to harsh - this money is also spent locally on lattes, takeaways, 98 octane and expensive wine!
Four houses under build just down the road from me by one outfit. Most days be lucky to see a couple of tradies doing anything on any of them. I do wonder whether sunset clauses are going to swing back the other way and buyers pulling out once they start seeing that the market has turned.
I have yet seen any actual policy to support our productive industries to help our economy to recover, how about welcoming foreigners to invest into our industries instead of just building houses and being landlords?
We need more houses, yes, but more landlords won't solve the inflation crisis at the moment. What's the plan to solve inflation here? All I've heard were excuses yet no plans, no actions from this government. Now you are talking about foreigners building rental and being landlord? Guess this country is run by bunch of landlords. Give me a break....
Fair point but we don't have much to offer here in terms of skills, infrastructure or strong business landscape to attract productive capital from overseas.
We had relatively high living standards going for us but the Key-Ardern coalition used that to attract the wrong crowd and capital in large numbers.
Attracting foreign capital in productive industries would be nice but we first need to figure out how to retain homegrown hi-tech companies within our borders beyond the early startup phase.
Published on Stuff also:
https://www.stuff.co.nz/business/128220970/tenants-are-having-to-dig-de…
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