Student accommodation – a robust investment opportunity

4 min read

In 2009, the Department of Higher Education and Training (DHET) confirmed there was a serious shortage of student accommodation in and around universities and campuses in South Africa. Fast forward to 2018, and the situation remains largely unchanged, with a constant influx of students from all around the country.

The DHET adds that often students are forced to live in facilities that are unsafe, far from campus, overcrowded and not conducive to studying. It has also confirmed that the shortage of accommodation is a direct cause of poor performance and high dropout rates at some universities.

According to statistics, there is only enough student accommodation for 100 000 students, which meets just 18 percent of the demand. What happens to the remaining 430 000 students who need a place to stay? The DHET is transparent about not being able to meet the increased demand for accommodation. Reasons cited are the lack of funding, rising maintenance costs, ageing residences, not enough space for new buildings, and the prioritising of academic facilities ahead of new residences.

As the accommodation crisis grows, and with it the demand, developers and investors have identified an opportunity. Private investors who buy property close to universities for their own children while they are studying find the resale value of the property increasing, sometimes to almost double the price they paid, which highlights the potential of student accommodation as a sound investment.

Private investors who buy property close to universities for their own children while they are studying find the resale value of the property increasing, sometimes to almost double the price they paid, which highlights the potential of student accommodation as a sound investment.

Property developers too have targeted this new opportunity, and adjusted their sights to make the most of the rising need. Property management companies like Rawson, Seeff, Cape Living, Student & Life, Go Green, MidCity and Redefine, to name a few, have changed the landscape to deliver first-class student accommodation.

MidCity launched The Edge Student Living in Gauteng. Specialising in transforming the student lifestyle, they offer three-bedroomed suites, furnished with desks, chairs, mattresses, couches, fridges, microwaves, etc. Add a rooftop entertainment area with a big-screen TV and braai facilities, then throw in 24-hour security, an IT lab for group work sessions and a self-service laundry, and students will never want to leave.

Another trend in property is revitalisation, which is when old buildings, houses and apartment blocks are either demolished or renovated into modern student apartments. Revitalisation has allowed investors to grow their returns by buying and repurposing properties in student zones. Areas and businesses in and around student lifestyle spots have also benefited from revitalisation, as it increases traffic to pubs, cafés, bookshops, gyms, grocery stores and restaurants.

Investing in student accommodation is also proving feasible globally. Research has seen a rise in student entrance internationally, which puts pressure on campus accommodation and infrastructure worldwide. In Canada, the majority of investors are buying family homes close to university grounds and adapting them to become youth hostels. Property investors are also buying land close to universities, and developing small- and large-scale condominiums suitable for student living.

In the UK, student housing construction projects have increased by 26%. According to Axiometrics Inc., 2016 was a lucrative year for student housing investors in the USA, where student enrolment is projected to reach 200 000. With only 45 000 beds earmarked for development, property investors are standing in line to take advantage of these development opportunities.

When reviewing the value of your investment, it is a good idea to think ahead. Just because property may be well marketed, located near a university and sold as student accommodation, does not mean it’s a good investment. There is still a need to ensure there is resale value and a good cash flow. Calculations of the financial benefits of a property rental must take yields into consideration. The yield is worked out like this: total annual rental received, less total expenses, divided by the cost of the property, multiplied by 100. In a student catchment area, yields of 6–10 percent are achievable, which are high, and a sound return on an investment.

Student apartments are an excellent buy-to-let option, and rented at a premium. It has been noted that rentals close to the University of Cape Town can start at R 4 800 a month for a bachelor flat, and go as high as R 21 000 for a modern three-bedroomed apartment. Rentals for a one-bedroomed flat in Pretoria close to Tukkies start at R 5 000 per month. You are almost guaranteed recurring rent for two or three years while students complete their studies.

As the shortage of student accommodation increases, so the demand grows, and therein lies a good potential investment for both current and new investors.

 

How to spot your student digs investment:

Location, location, location. Students want to be close to university, transport, food and entertainment.

Features – keep them basic. Students want safe, affordable and clean accommodation.

Student demands are changing. Gone are the days of just having a place to crash. Students want fast Wi-Fi, a private bathroom, their own kitchen, TV and an ability to make their living quarters personal.

Developer track record – what has your developer built before? Check your developer’s portfolio and track record, and speak to clients from previous developments completed to gauge their reputation before you invest.

Property management record – do you need a property manager? Just as you would check your developer credentials, so you need to invest with an expert who will manage your property on your behalf. Managing student rentals is a specialised skill.

Screening tenants – finding and selecting renters is important. Find out who will be paying the rent, how many students will be living in the house or apartment, whether you need insurance, etc.