Student properties pass with flying colours
Student flats in the UK are becoming more and more of a high-yielding asset class, writes Michelle Funke
STUDENT property has performed extremely well in the UK as an asset class over the past three years compared to the traditional property investments. In fact, Craig Illman, a director of UKbased investment company Propwealth, notes that student flats have outperformed standard the commercial property yields during the economic downturn and are attracting large investment funds and savvy buy-to-let investors throughout the world.
“The driving factor,” he says, “is there is a huge undersupply of purpose-built student accommodation in the UK and recent planning changes are making it more difficult to develop student properties. Limited supply, coupled with rising global interest in the UK’s tertiary education system, points to further demand and rising rental returns in this sector.”
In addition, he says, international student mobility is increasing every year and rose five-fold between 1975 and 2008, with the number of non-EU students rising by 12% in 2009 and EU students by 6%. Furthermore, the international fees charged at UK universities are globally competitive.
Universities are becoming more commercially minded to attract the best calibre students as possible. Many campuses are spending millions of pounds on development and infrastructure upgrades to make themselves globally and locally competitive.
“More than 550,000 students entered UK universities this month with more than 70% looking for accommodation in the private sector,” says Illman. “A large percentage of students prefer newly-built accommodation that offers lifestyle and proximity to campuses and social attractions. It is predicted that property close to the best universities will become more sought after. Strike now, and you could end up with an asset that increases in value while it earns excellent rental returns.”
But, he says, as with any investment it is best to look at all the angles and to weigh up the pros and cons. Consider the resale value. Student flats should be treated as commercial units so don’t buy to flip. The resale value will be related to the yield so investing close to growing universities makes sense, as demand will increase yields over time.
Many student studio developers are offering guarantees of a five-year, 8%-9% gross return. All the developer is doing is building rental yields for the period into the sale price, which means the buyer pays for his or her own rental yield over the five years. The UK is awash with horror stories once these guarantees expire, when the actual rental market takes care of the level of rental. Most investors’ yields have dropped substantially, so treat student lets as normal buy-to-let investments and let the current rental market dictate the yields when buying, not an artificial return set for sales purposes.
Finally, Illman says investors need to make sure the property is fully managed by a reliable and focused student rental company.
Propwealth has identified Liverpool as a new up-and-coming hotspot for student developments and buy-to-let properties. This is because Liverpool is enjoying excellent growth and students are attracted to the high quality of its universities, tourism, nightlife and excellent lifestyle.
“There are more than 50,000 students in the Liverpool catchment area and a serious shortage of housing. Liverpool University is part of the Russell Group, which includes Cambridge University, London School of Economics, Oxford, University College London and 14 others throughout the UK. Furthermore, Liverpool University has just announced a £600m investment master plan to increase its world-class standard even further, taking it into the top 1% in the world,” says Illman.
Propwealth is offering South African investors an opportunity to acquire a unit in Pall Mall House Student Studios, situated in the centre of Liverpool’s business, commercial and social area, just 300m from Liverpool John Moore University with 27,000 students.
“This bespoke development consist of 25 fully-furnished ensuite studios, communal areas, laundry facilities and extras such as bike storage areas and CCTV,” says Anthony Doyle, a director of Propwealth. “Pall Mall House Student Studios will be aimed at more mature students and postgraduates. We have enlisted a top student rental company to manage the development, making it an excellent distance investment.”
Current rental yields reflect a net return of 8% and Pall Mall House is due for completion by August next year in time for the new university year.
Doyle and Illman will be in Johannesburg on October 30 and 31 and in Cape Town on November 6 and 7 and are inviting investors to discuss this opportunity. To book an appointment, e-mail email@example.com.
From £50,000 to £59,500.
Propwealth Craig Illman UK office +44 1273 732 069 UK cell + 44 7500 166 982 SA cell 083 250 0388
Pall Mall House Student Studios.