This article is from the Australian Property Journal archive
THE New Zealand government will offer build-to-rent developers tax breaks if they offer tenants leases of at least 10 years.
NZ Housing Minister Megan Woods announced an exemption for new and existing build-to-rent developments from interest limitation rules in perpetuity when offering the 10-year tenancies would apply from the beginning of October.
Tenants can ask for shorter agreements if they wish and the development will still qualify for the exemption, Minister Woods said. Tenants will be able to break their tenancy agreements at any time, with a 56-day notice period.
“We believe security of tenure is critical for people who are renting. This requirement will enable people to settle and personalise their homes, reduce how often they must find a new place to live and all those associated moving costs, especially as people face cost of living challenges, and help them to build and maintain connection to their community.
“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.”
Property Council New Zealand chief executive Leonie Freeman said the “announcement is one of the best levers to unlocking the potential of build-to-rent,”
Built-to-rent – also known as multifamily – is a much more advanced model in the United States, United Kingdom and Europe, but is gaining traction in Australia and New Zealand. Australia’s build-to-rent sector is set to mature into a $9.6 billion market by 2027, but federal government tax arrangements still present challenges to the nascent sector.
When in opposition, in the lead up to the 2019 election federal Labor said it would halve the managed investment trust withholding tax rate to 15%, giving institutional investors better tax concessions to encourage investment in the build-to-rent sector.
The policy was part of Labor’s housing tax reforms under opposition leader Bill Shorten which included abolishing negative gearing which was abandoned when Anthony Albanese was elected opposition leader.
It remains unclear whether the new Prime Minister and Treasurer Jim Chalmers would adopt the proposal.
As it stands, a build-to-rent developer will still incur a 10% GST on the development whereas build-to-sell developers can claim GST credits on land and construction costs.
Both the NSW and Victorian governments have announced a 50% concession on land tax for build-to-rent developments recently. The NSW government has also announced a concession on the foreign investor surcharge, similar to that applied to build-to-sell developments, while Victoria has exempted build-to-rent developments from the absentee owner land tax surcharge.
With rental vacancies tightening and the National Housing Finance Investment Corporation forecasting a shortfall of 163,400 homes by 2032, property players say build-to-rent can fill the void left by build-to-sell.
According to Cushman & Wakefield, a reclassification of BTR as being “commercial residential” would allow built-to-rent to enjoy similar tax privileges to other commercial developments.
Construction costs and the availability of land are cited as other inhibitors of build-to-rent developments down under, as well as the lack of quality land, while the lack of definition of the asset class means financing has been scarce.
