Government incentivises development of tenant-friendly housing

New and existing build-to-rent developments will now be exempt from the interest limitation rules that recently came into force.

Since 1 October 2021, it has no longer been possible to claim interest for residential property acquired on or after 27 March 2021. For properties acquired before 27 March 2021, the ability to deduct interest is being phased out between 1 October 2021 and 31 March 2025.

However, the Ministry of Housing and Urban Development (HUD) has announced an exemption for build-to-rent developments. That’s because the government wants to incentivise investors to build new rental properties, in the expectation that increasing housing supply will put downward pressure on prices.

Under HUD's proposed build-to-rent asset class definition:

  • Developments must have a single owner
  • Developments must have at least 20 dwellings (although these can be in multiple buildings and on multiple contiguous parcels of land)
  • Developments must have dwellings that are used or available for rent under the Residential Tenancies Act 1986
  • Tenants must be offered a fixed-term tenancy of at least 10 years with the ability to give 56 days’ notice of termination
  • The exemption applies from 1 October 2021 for qualifying build-to-rent developments.

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