It's big in both the United States and Europe – and may be one answer to New Zealand's accommodation crisis, an Auckland-based property developer believes.
Kenyon Clarke, CEO of one of the country's largest private apartment developers, the Du Val Group, is talking about a concept he says is not common in New Zealand - build-to-rent (BTR) residential property.
The idea, he believes, is win-win for investors and tenants alike. Investors get the opportunity to put money into a fund that owns tenanted residential apartments in Auckland and provides secure income from property – without having to become a traditional landlord. At the same time, tenants get affordable and long-term housing that won't be sold under them.
"BTR gives security to everyone involved and, at the same time, provides answers to our accommodation crisis," says Clarke. "It is a multi-trillion-dollar industry in the US and has also been adopted in Europe in response to the huge need there for accommodation. In these uncertain times, it is an investment that provides certainty and I believe now is the time for New Zealand to embrace the concept."
BTR developments are multi-unit, higher density residential communities built specifically to be rented, rather than sold. They tend to be owned by institutional investors who buy shares in the development, rather than purchasing individual units.
Rent collected from tenants is paid out to investors in the form of dividends, based on the number of shares they own.
Clarke says this means you can invest in property without having to deal with tenants or property managers or worry about organising maintenance and paying bills: "From an investor's point of view, it means you are completely hands-off, yet you have all the benefits of a highly-performing asset and certainty of cash flow."
Du Val Group's BTR managing director, John Dalzell, says it has taken New Zealand a while to get used to the type of indirect investment offered by BTR residential portfolios.
"We have seen it in some other sectors of the market, like commercial and industrial, where it has become more mainstream but, for some reason, it has been missing from our residential sector. Perhaps this is because BTR is different and anything different is scary. We have talked in the industry about it for years but it's only recently people have begun to see a need."
Dalzell, the former interim chief executive of Auckland Council's urban regeneration agency Panuku Development, says current low interest rates, due to the economic hit caused by Covid-19, are likely a large part of the reason for this shift in thinking.
"We have got to a point where it is just unsustainable for people to be living off the capital they have invested, returning what are pretty suboptimal rates," he says. "Low interest rates are likely for the foreseeable future and people are having to re-think what they are doing with their money."
Investing in BTR can produce returns of eight per cent – much higher than that presently offered by banks and other financial institutions, as well as opportunity for capital gain, he says, while a BTR portfolio is extremely reliable, with low vacancy rates.
"Your money has to work for you, especially if you need it to fund your retirement. If you are depositing money in the bank, you are running the risk that you are actually going backwards because inflation is eating away at capital," says Clarke. "With BTR, you know 100 per cent of the income you got yesterday is going to be the income you will get tomorrow. Because you have invested in property, you have the opportunity for it to gain value over the long term."
Another bonus to investors is knowing their money is going towards a solution to Auckland's chronic housing issues: "I know I would rather see my money being invested in a product that gives people somewhere to live, especially when we have a housing market that is just not fair to many," says Clarke. "Rather than this just being the responsibility of government, it is also the responsibility of private business."
For tenants, BTR tenancies are long-term, giving the security of knowing they can stay put for years. They don't have to worry about the hassle and expense of frequently finding somewhere new to live because their landlord wants to sell the property or move family in.
The rent, which keeps pace with inflation, covers utilities and extras like wifi and fibre. "When utilities are included in your rent, you know exactly how much you have to pay every week; that allows you to budget and hopefully to save money," says Clarke.
BTR communities tend to be located on or near main arterial routes and close to large employment hubs.
Du Val has two BTR communities' people can invest in at Mangere Bridge and Mangere East. Already built, they provide 171 accommodation units.
The Du Val Build To Rent fund is now available for investment by wholesale and eligible investors looking to invest from only $250,000. The fund is seeking total investment of $17.5m, which it expects to reach very soon.
Disclaimer: Investment in the Du Val Build to Rent Limited Partnership (the above fund) is only available to wholesale and eligible investors in accordance with the Financial Markets Conduct Act 2013.
For more information see duvalpartners.com