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PROPERTY NEWS
AGovernment plan to allow build-to-rent developers to offset interest costs against their income to reduce their tax obligations discriminates against ‘mum and dad’ investors, says the Property Investors Federation. While most investors face the phase-out of interest deductibility, Housing Minister Megan Woods says upcoming tax legislation will give the exemption to new and existing buildto-rent developments in perpetuity. It will apply retrospectively from October 1, 2021. Owners of build-torent assets can claim interest costs relating to these assets for as long as the asset is held and operated as a build-to-rent development. The proposed requirements for the new asset class include that tenants must be offered a fixed-term tenancy of at least 10 years, with the ability to give 56 days’ notice of termination. They do not have to accept this term. The developments must have at least 20 dwellings in one or more buildings, with a single owner of any common land or facilities. They can be held in one or more titles.
Property Investors Federation president Andrew King says it appears the Government has bowed to big business lobbying and changed the rules for large developers-turnedlandlords.
“Woods says build-to-rent developers provide high quality rental housing so these tax benefits are going to benefit high income earning tenants rather than the vast majority of tenants as a consequence.” King says most tenants cannot afford brand-new, high-end accommodation. “They want well maintained, warm, dry but ultimately goo- value rental accommodation.”
Build-to-rent is a different model of residential housing to that commonly seen in New Zealand’s current private rental market, says Woods. She says it has the potential to increase the supply of quality rental housing at pace and scale. “Buildto-rent can also support housing construction at times when securing buyers and finance for build-to-sell developments is more challenging, as it is now.
“The build-to-rent sector can attract different forms of long-term investment such as from iwi or superannuation funds. This is critical to providing new general and market affordable supply.” Woods says the tax exemption will encourage further development of this type of rental supply and enable the full potential of this sector. However, King says most rentals are provided by ordinary Kiwis who own one or two investment properties. “They mostly provide an excellent service to their tenants and new laws mean they must provide a warm, dry rental home. These private landlords operate with low overheads and low (often negative) margins that actually provide true value for tenants. These are the rental that should be supported, not large corporate developers.” The federation’s published plan to fix the rental crisis includes stopping the phase-out of interest deductibility, removing ringfencing and the bright line test.
The federation has also suggested introducing a security-of-tenure model based on the German system and said this would provide long-term security for the majority of tenants, not just high-earning ones.
Image: Andrew King
Image: Ross Taylor
The Commerce Commission says it’s too hard, costly and slow to get new building products approved for the New Zealand residential market. In its draft report into the state of the building supplies market, the commission says regulatory systems are hampering competition and the market is not working as well as it could. The commission says quantity-focused rebates, restrictive land covenants and exclusive leases are parts of the sector not working well. It wants to improve the conditions of entry for competitors. This would include new compliance pathways for a broader range of key building supplies because, it says, there are too few competing suppliers for many categories of products and competition at the supplier lever is limited to some key players. The commission wants a Maori world view reflected, an examination to be made into removing impediments to substitution and an investigation into whether the barriers to certification and appraisal of building products could be reduced. A new register has been established to share information about building products and consenting to help centralise the knowledge. On rebates, the commission encouraged builders to invoice their clients at the true price they paid for the goods and be truthful about what they were paying. It found loyalty to Winstone Wallboards and its Gib product, which has about a 94% market share, is likely a result of its level of service, the quality of Gib and comparative prices, regulatory barriers for competitors to come into the market and - until recently - import duties on plasterboard. The Productivity Commission estimated New Zealanders pay between 20% to 30% more for building materials than those in Australia. Prices rose 16% in the last three months of last year and a further 12% rise is being predicted for the second half of this year. The building companies have been defensive about these figures and Fletcher Building chief executive Ross Taylor told the commission materials were only a small part of overall house prices. ✚
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