New Ground Capital is making waves in NZ housing market by realising the untapped potential of Build to Rent investment.
Originally founding New Ground Capital to leverage his skills in the financial markets in a meaningful way, Roy is committed to completing the establishment of the Build to Rent sector in the NZ housing market, as well as continuing to grow impact investing as a viable and successful investment alternative.
Over his extensive career he has been involved in the establishment of the National Bank Private Bank, served as the Global Head of Product Management and Investment Services, led Westpac’s national Private Wealth Management business and the Business Bank for the Auckland region.
We spoke with Roy about how the Build to Rent sector is developing in New Zealand.
You’ve been in the investment space since 1989, how has the property investment space evolved since the time you’ve been involved?
If we look at the residential property space in NZ, it hasn’t evolved that much at all. The residential space in NZ is dominated by Mum & Dad investors, typically old stock and often it’s quite outdated and sometimes even unhealthy rental housing.
We’ve been at the forefront of the evolution of dedicated BTR since 2014, we’re at the early stages. We have circa just over 100 units under management and another 250 under development but it’s still very early days.
What were the initial challenges you encountered in New Zealand gaining that buy-in for BTR and how did you overcome them?
Capital is a big one because the institutional investor market which is who we work with has never invested in residential housing in NZ before, outside of student accommodation and retirement villages.
You have to educate the market on why an institutional investor should invest in residential housing as part of their portfolio. And in NZ when you back-solve the returns from residential housing, you can see that the returns are at least comparable to equity market returns but with lower volatility and low correlation to equity market returns.
So from an institutional investors point of view it’s an excellent addition to the portfolio because it helps to smooth out returns.
It’s 1:1, sitting down with individual investors and talking to them about the benefits of adding residential assets into their portfolio incorporating investments.
You’re competing with build to sell, most obviously and it’s not quite an equal playing field so that is certainly a challenge. There are some tax issues there.
The third thing is how do you actually deliver a yield through build to rent which is competitive with other property alternatives. We’ve had to work hard at that but on the hand but on the other hand it’s also been helpful that over the last five years yield’s compressed on commercial and industrial property in particular.
What are some of the key differences you’ve observed between the Australian and NZ property market?
We don’t have quite the same challenges that you have in Australia with stamp duty and some of the other particularly tax hurdles. We’re fortunate on one hand that we have a reasonably stable tax environment but the cost of construction particularly at high density is really at peak levels here.
So that makes it quite challenging.
BTR is considerably more developed in USA and the UK, why do you think Aus & NZ have finally come to the party?
Our housing markets face a lot of the same challenges that have already been faced in the UK and Europe: high population growth, cities are getting more and more spread out, people are being forced to live further and further away from their places of work, affordability issues, mismatches and what’s being developed vs what’s actually being demanded.
Build to rent addresses many of those issues and it’s typically higher density and it’s making better use of land and it’s allowing people to reside closer to their places of work.
Providing people efficiency and frankly speaking a lot of people don’t want to have the hassle of owning and maintaining a large property. They’re quite happy for that to be provided to them.
How do you see build to rent developing over the next 10 years?
I think it’ll continue to be a gradual awakening in the market to deliver this style of housing alongside the normal build to sell housing that’s being developed in Australia & New Zealand. Institutional investors are switching onto the opportunity and that’s going to be key to growth in the area. Having said that, it’s still challenging to make build to rent development stack up because it needs to be a process over time.
It also needs banks to understand what build to rent means, how it operates, that in return requires valuers to know how to value entire build to rent developments all in one line. So there’s an education process that runs right through the market.
Source: Criterion Conferences