Govt clarifies that NZ does welcome foreign investment in purpose-built rental housing

Property / news

LINZ issues guidance clarifying that while foreigners can't buy existing houses in NZ, they can build rental houses

31st Mar 22, 9:30am by Jenée Tibshraeny

Megan Woods

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

by 2022 | 31st Mar 22, 9:33am 1648672439

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…

by HouseMouse | 31st Mar 22, 10:00am 1648674017

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.

by YourHomeLoan | 31st Mar 22, 10:04am 1648674248

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.

by Hamish | 31st Mar 22, 10:14am 1648674889

The government tanked the housing market by allowing this 'asset class' to keep inflating to where it has.

by Gummy Bear Hero | 31st Mar 22, 11:35am 1648679717

... 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 ...

by murray86 | 31st Mar 22, 10:18am 1648675122

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.

by YourHomeLoan | 31st Mar 22, 11:08am 1648678101

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.

by murray86 | 31st Mar 22, 11:20am 1648678824

"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.

by Sluggy | 31st Mar 22, 12:16pm 1648682188

the red tape it would pile upon businesses

I run/own a business, got any examples of the above ? Personally Im doing exactly now what i have for the last 10 years.

by YourHomeLoan | 31st Mar 22, 2:24pm 1648689858

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.

by agnostium | 31st Mar 22, 10:55pm 1648720536

I think your industry needs to drown in a little red tape. Left to it's own devices it's pretty much f*** the economy.

by agnostium | 31st Mar 22, 10:53pm 1648720436

Of course it does make things more affordable. It makes it way more affordable than houses going up by a third while interest rates double.

by RickStrauss | 31st Mar 22, 11:10am 1648678220

The speculative property market has grown this issue and problem through decades of mismanagement and parliamentary foxes guarding the hen house. When property has gotten to the point of absolute dependence on policy and reserve bank welfare...well...

by 2022 | 31st Mar 22, 10:11am 1648674685

Lets see what happens. Have you got a mortgage HouseMouse ?

by HouseMouse | 31st Mar 22, 10:43am 1648676638

Yep and not worried about it at all, given my relatively good equity in the house.

And on the plus side, if a 30% fall did happen, the OCR would have returned to close to zero, or even potentially negative...

by 2022 | 31st Mar 22, 10:55am 1648677353

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 !

by mfd | 31st Mar 22, 1:45pm 1648687511

I agree - it's very hard to take someone seriously when they are not aware of their own limitations. The future is always a spectrum of possibilities.

by Averageman | 31st Mar 22, 10:17am 1648675076

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.

by Carlos67 | 31st Mar 22, 10:25am 1648675531

Yawn, I just woke up to a beautiful clear blue sky in Tauranga and the birds are singing, life sure sucks in your world 2022, still 2023 is coming and it should be even better.

by streetwise | 31st Mar 22, 10:57am 1648677441

No tsunami warning alarm then from the off-shore Pacific fault line?

by Simon | 31st Mar 22, 11:01am 1648677660

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.

by DTRH | 31st Mar 22, 11:33am 1648679615

Simon do you really think the government of RBNZ has any say in interest rates just look at Fed if they put up rates NZ have too or NZD will crash into oblivion making inflation even higher and Fed is saying rates are going up get with it Simon and HM

by HouseMouse | 31st Mar 22, 11:51am 1648680672

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.

by DTRH | 31st Mar 22, 11:59am 1648681170

I think Fed gave forward guidance that 7 hikes in year maybe two of them .50%. Inflation is the problem HM be assured Fed would not say this or do it for fun.

by HouseMouse | 31st Mar 22, 12:33pm 1648683230

Really?

governments and government agencies often jawbone.

by Simon | 31st Mar 22, 3:06pm 1648692382

They went even get half way through before they pause reverse also. But they'll act brave and tough all the way before making the U turn.

by the way | 31st Mar 22, 11:57am 1648681076

Things often get said so that those very same things don't get applied.

Careful not to let the rhetoric blur your perception.

by HouseMouse | 31st Mar 22, 11:47am 1648680456

Well put.

by Stan123 | 31st Mar 22, 12:38pm 1648683526

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.

by the way | 31st Mar 22, 1:04pm 1648685088

Yes, this is intriguing Stan. Why indeed?

by murray86 | 31st Mar 22, 1:29pm 1648686540

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?

by Audaxes | 31st Mar 22, 9:46am 1648673197

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.

by Foxglove. | 31st Mar 22, 9:52am 1648673574

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.

by streetwise | 31st Mar 22, 11:08am 1648678138

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.

by WestieAJ | 31st Mar 22, 11:19am 1648678741

1.5 Billion for the entire BNZ bank in 1992. It now makes close to that in a single year.

by Gummy Bear Hero | 31st Mar 22, 11:40am 1648680042

.... and that 1.5 Billion goes ... back home to Australia ...

Lest we be despondent , as good accountants do , they balance the ledger by sending 501's back to us ...

Joy !

by HouseMouse | 31st Mar 22, 9:58am 1648673925

Well, I guess this is good news for the Build to Rent sector, which I'm supportive of, even if I have an element of underlying skepticism of it.

by YourHomeLoan | 31st Mar 22, 9:59am 1648673943

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.

by kiwikidsnz | 31st Mar 22, 11:03am 1648677813

For large Greenfield development sites 6m could go out to 6yrs with RC approval/appeal (Councils, Planners, Geo Engineers, Environmentalists, Iwi, Co-Governance & other "stakeholders"...)

= Too Hard basket.

by agnostium | 31st Mar 22, 11:06pm 1648721184

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?

by Jonny.Foe | 31st Mar 22, 10:00am 1648674032

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.

by sadr001 | 31st Mar 22, 10:04am 1648674278

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?

by Eschaton | 31st Mar 22, 10:05am 1648674320

Foreign landlords, just what we need.

by Advisor | 31st Mar 22, 10:51am 1648677114

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!

by nktokyo | 31st Mar 22, 9:39pm 1648715977

I own a few student rentals and am financially incentivised to agree with you.

by Hamish | 31st Mar 22, 10:17am 1648675078

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.

by HouseMouse | 31st Mar 22, 10:45am 1648676728

It's usually very very hard to pull out...S & P agreements are always weighted heavily in favour of developers.

by RickStrauss | 31st Mar 22, 11:12am 1648678340

Sunset clauses are sunset clauses though...

by company of heroes | 31st Mar 22, 10:38am 1648676293

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....

by RickStrauss | 31st Mar 22, 11:13am 1648678387

What we do here as politicians is talk the talk on productivity but invest in residential property... So policy tends to flow from that.

by Advisor | 31st Mar 22, 11:29am 1648679363

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.

by Stan123 | 31st Mar 22, 4:51pm 1648698699

Plan to solve inflation?

by Nzdan | 31st Mar 22, 3:04pm 1648692295

What's wrong with asking for rent reductions? Landlords consistently ask for rent increases.

by sadr001 | 31st Mar 22, 9:08pm 1648714090

I believe that in the last 25 years pretty much every Auckland landlord has given all their tenants rent reductions every time Auckland council dropped rates.

by nktokyo | 31st Mar 22, 9:44pm 1648716242

This year I passed on my decreases in insurance and property rates to my tenants.

by Gummy Bear Hero | 31st Mar 22, 12:27pm 1648682828

... just heard on the wireless , that average rentals across NZ have reached an all time high of $ 575 per week ....

So ... the governments policies since 2017 have done what ? ...

by GregF | 31st Mar 22, 1:19pm 1648685974

Published on Stuff also:

https://www.stuff.co.nz/business/128220970/tenants-are-having-to-dig-de…

by nktokyo | 31st Mar 22, 9:41pm 1648716061

The government just implemented a 6% rent- sorry, minimum wage increase. Slip of the tongue there.

by Stan123 | 31st Mar 22, 1:36pm 1648686997

I presume the foreign investors get an interest deduction for building new places and renting them out. Of course, the existing local rental owners will not in due course. Makes sense?

by nktokyo | 31st Mar 22, 9:42pm 1648716160

Governing by opinion poll.

by anderJ | 31st Mar 22, 4:35pm 1648697712

Kinda Crazy - encouraging foreign big business to build for rent while stomping on NZ mum n Dad investors. Will tenants be better off - no way. Will rents decline - no way.

by nktokyo | 31st Mar 22, 9:41pm 1648716119

That's the labour government for you. Big business making money? Sweet as, natural order of things. Individuals getting ahead? Not fair.

by PocketAces | 1st Apr 22, 4:39pm 1648784363

This is something I'd definitely be at loggerheads with the government over. IMHO the precise number of foreign landlords needed or desired in this country is zero.

by the way | 2nd Apr 22, 4:59pm 1648871943

Yes, that is a nice round figure.