The Overseas Investment (Build-to-rent and Similar Rental Developments) Amendment Bill passed its third reading yesterday and is set to come into force next week. The legislation amends the Overseas Investment Act 2005 (Act) and creates a streamlined pathway for investment in already developed build-to-rent (BTR) housing.

BTR developments are purpose-built, large-scale properties designed exclusively for long-term residential rental units. Such developments are common overseas but are relatively new to New Zealand. Housing and Associate Finance Minister Chris Bishop has stated that: “Build to Rent housing offers an opportunity to increase the supply of secure, affordable and quality rental developments in New Zealand, placing downward pressure on rents.”^[1]

The restrictions contained in the Act have historically posed a challenge for foreign investors interested in the BTR market in New Zealand.

Under the current legislation, for an application to be successful, a foreign investor has needed to demonstrate that their investment will, or is likely to, benefit New Zealand. This can be difficult for an investor who wants to invest in already developed housing stock (rather than developing it themselves where they can show benefit by increasing housing, capital expenditure and job creation during construction). The only benefit they could potentially rely on was reduced risk of illiquid assets but, as discussed in our earlier article (Reduced risk of illiquid assets and passive overseas investment) there was a reluctance by investors to be the test case.

While a process exists for the initial developer through the increased housing pathway, this was not available for subsequent purchasers of those developments. This posed not only an issue for investors in existing developments but also the original developers who knew their on-sale market was limited to New Zealand investors, of which the pool is small.

The changes to the Act aim to rectify this by introducing a “large rental development test”. This new streamlined test will allow overseas investors to purchase existing BTR developments, provided that they acquire at least 20 dwellings (contained on one site or adjacent sites) and they are made available, or continue to be made available, for lease to residential occupiers. 

We view the new stream-lined pathway as a very positive step in encouraging the expansion of New Zealand’s BTR market, by attracting foreign capital, and ultimately, increasing the country’s long-term rental housing stock. 

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Special thanks to Deanna Moore for her assistance writing this article.