Build To Rent? This is all you need to know

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In a very underutilized market in New Zealand, rental properties are focused on creating long-term, stable rentals for people. Gives people a helping hand in securing a home by negotiating affordable rental agreements, giving families peace of mind and security.

What is build to rent?

Build-to-rent is a term for residential real estate developments built to provide long-term rental accommodation to tenants (source) and is an emerging submarket in many countries with constantly growing populations, such as the UK or Australia. The most important feature is to create long-term tenants, which guarantees 100% tenant retention. Rental properties can range from townhomes, apartments, or entire neighborhoods.

Build to Rent (BTR) is sometimes referred to as multi-family housing and is a type of urban housing development to help address population growth in areas. These houses or housing complexes are designed by an investor or developer who retains ownership as well as manages and maintains the building itself.

As opposed to the popular and traditional ‘build to own’ model, where a developer would build an apartment and sell the units to people, who would live in or rent them out.

Why would build to rent be helpful?

This provides an opportunity to increase the supply of rental properties and rental development in Aotearoa, New Zealand, and is aimed at normalizing rentals in the long term. It will be a huge mental shift for Kiwis who are focused on buying and buying their products to enjoy this type of equipment.

In Europe, where they are popular, many who build rental houses have shared facilities, such as gyms or common areas, and are close to services such as schools or transport hubs. Europe has a much larger population to allow for such things.

How does build to rent work?

The developer would own the house, building, or facility, and it can be rented for a long period (for example, people can rent the same place for 20 or 30 years, even if it’s a yearly lease). This will release the tenant from any maintenance or responsibility on the property, and the complex itself will be set up with the intention of a longer stay. It must be carefully calculated to correct the numbers and ensure the benefit of development.

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Typically, building rental plans will be backed by retirement funds or KiwiSaver; however, like other countries (like Australia) that operate retirement plans, they already have trillions of dollars that allow them to diversify their funds.

How is rent to own and build to rent different?

With rent to own you essentially rent out a dwelling for an extended period of time (for example, 20 years) at an above market rental rate in order to build up a deposit and buy the house. A trend here however is you don’t own the land itself, and just own the dwelling. Build to rent is, as we have stated above, is where a developer has built a complex with the intention it is a rental only facility.

How would build to rent work in New Zealand?

Purpose-built rental properties can contribute to higher rents by improving amenities to encourage tenants to stay. As we know that around 35-40% of people in New Zealand are homeless, the constant fluctuation between property sales can make it difficult to find long-term accommodation. Building a rental can provide a stable and peaceful environment for the tenants as a solution.

What are the benefits of build-to-rent properties?

Easier leases

“Build-to-rent properties typically offer leases with features that are different to a traditional rental scenario.” (Source) Such flexible lease arrangements could be long-term with unique or different renewal conditions, no or low bonds, or even the ability to decorate and personalise a dwelling outside of the normal scope. A common bonus overseas is having pets without the need for pre-approval!

Same complex, different unit

The developer will likely have an on-site manager to help oversee rental arrangements, meaning tenants will have more flexibility in meeting their needs. This may include moving them around the building if their situation changes with new children or removing them when the children move. Of course, this can be done in a traditional apartment rental, since some rooms are built differently, exchanging apartments or entire units may incur additional cost to the renter.

Stable & affordable rent

Widely regarded as a new solution for people looking for stability and unable to pay a down payment on a house, some of these projects will have discount rates for a fixed period of time. The immobility of income makes things easier for people who are on a budget or for people who are planning the next steps in their future.

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