Homework needs to be done before buying a student let
The student property market is changing so is now a good time to invest? Sharon Dale takes a look at what is happening.
PURPOSE-BUILT student accommodation has burgeoned and many local authorities are keen to see more of it. But these new rooms, coupled with a seven per cent fall in university applications this year thanks to the rise in tuition fees, have unsettled the traditional buy-tolet market.
Some investors and lettings agents are concerned that demand for shared houses could shrink and new research by Unipol confirms their fears.
It reveals that students in Leeds are leaving their traditional heartlands in favour of purposebuilt blocks and city centre apartments.
Since 2006, purpose-built rooms, mainly in and around the city centre, have increased from 12,500 to over 18,500 and the number of students living in smaller houses has declined by 5,911. The number living in city centre apartments rose from 494 in 2007 to 4,791 in 2012.
Meanwhile, in central Headingley, student renters have fallen by 19 per cent over the past six years, while in fringe locations such as Woodhouse, Kirkstall and Burley they have plummeted by over half.
In 2010, almost 16 per cent of properties in the Headingley, Hyde Park and Woodhouse area advertised through Unipol remained empty and just under a third of them were left unlet in neighbouring areas.
This year, there will be up to 2,500 fewer students in Leeds and more houses will remain vacant, according to Martin Blakey, chief executive of Unipol Student Homes, who says fears of studentification could be replaced by under-population and dereliction.
Ian Potter, managing director of the Association of Residential Letting Agents (ARLA), has already called landlords to action.
He says: “Landlords should not be surprised by the drop in student numbers, which follows on from the hike in fees and ongoing tough employment conditions. In recent times student lettings has been an area of almost constant growth, but it is now time for landlords to recognise that there may be more competition for tenants. Having a positive reputation and letting good quality properties is the best way of encouraging tenants, and taking a moment to re-assess your property or portfolio to bring it up to scratch can reap rewards in the long term.”
Andrew Wells, of auctioneer and valuer Allsop, says choosing the right location is key.
“Purchasers of student property in Leeds and Sheffield are being increasingly choosy and prime location means everything. This mirrors the demand from students themselves who want to be closer to the heart of things, turning their backs on fringe locations and long bus rides. They also demand better standards. A shabby, un-loved student house even in a prime area will struggle to let.”
Those offering better quality are rewarded by higher rents, he says. In Leeds, a prime shared house in good condition achieves about £78 per week per room. In Sheffield it is about £75pw. So a five-bedroom student house in a good area produces about £20,000 a year. The rental yield is about three per cent higher than a traditional buy-to-let.
Buying activity is at its strongest in the spring as investors anticipate new lettings for the academic year in September.
“This spring was very active with about £15m to £20m of student houses being traded in Leeds,” says Andrew.
“Improved availability of buyto-let finance is helping. Buyers are a mix of parents and amateur investors. The large, existing student landlords have been less active buyers, most concentrating on reducing debt and meeting their loan covenants.”
He suggests that the safest investment is in areas close to the old redbrick and research intensive universities.
“Purpose-built modern blocks are still a major feature in the market. This sector has been buoyed by strong investment demand from a number of UK pension funds as well as overseas and wealth-fund investors.
“They seem unconcerned by the affordability pressures on students in the light of higher tuition fees, but this says a lot about the fundamental quality of student cities like Leeds and Sheffield when compared with lower ranked new-wave university towns.”
The blocks, which have en-suite rooms and shared kitchens to let from £75 to £100 per week, have struggled to retain students after their first year, not least because it is cheaper and more fun to share.
But Victoria Loverseed, development manager for Unipol Student Homes in Leeds, says: “The majority of students live in houses after their first year, but this is becoming less pronounced, with a fall from 31,500 students living in this type of accommodation in 2006 down to around 23,000 this year.
“Sharing is still cheaper than living in a development, but not by much. The average rent in a shared house in 2012 was £67.83. However when you add in the cost of utilities and internet it is closer to £80 per week, which compares to an average of £93 for room in a development in Leeds. So the gap between them is narrowing.”
CORE VALUES: Orchard House has lots of character with many traditional features and also comes with a detached one-bedroom cottage providing an additional source of income and access to the River Seven with fishing rights. It also has a large landscaped garden.
PROFITS: Student property can give better yields than conventional buyto-let. But students are moving away from shared houses to new blocks.