How to compare student property
Comparison of different student property investments
What fundamentals should investors consider when looking at student property investments? How do different towns and cities stack up with regards to current availability of stock and student numbers?
Student numbers in the UK
The UK student property investment market continues to outperform other commercial property investments. The student numbers have continued to increase year on year and a record 40.5% of 18-year-olds applied to go to university in 2020. The United Kingdom also continues to attract students from overseas because, when compared with other European countries, it has the highest number of universities within the top 400 ranked globally. The number of overseas students enquiring about studying in the UK is bouncing back. According to UniQuest, there were 67 per cent more enquiries in April 2020 compared with April 2019.
Institutional investors in the student property market
The marketplace has attracted several institutional investors; Blackstone’s acquisition of iQ Student Accommodation for £4.66 billion in February was the UK’s largest ever private real estate deal on record. There was also Singapore-based investor Mapletree’s purchase of several Unite developments and DWS’s £600 million purchase of Vita Group’s purpose-built accommodation units.
How can everyday investors access the student property market?
Although, the student property funds are active in the market, everyday investors also can take part in this lucrative investment market.
One Touch Property Investment, who have won Property Wire’s “Best Student Property Investment Provider” (April 2018) have helped hundreds of investors to purchase student accommodation investments.
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Analysing student property investments
We can compare some recent opportunities in terms of some of the most common considerations, namely:
- Supply and demand
- Return on investment
- Rental Guarantee Period
- Credibility of the developer
- Ongoing management company
Supply and demand
Often the demand for student accommodation is related to the number of students attending the universities, which is often a function of the University ranking. Universities, such as the University of Sheffield is ranked 14th in the UK and 117th worldwide according to the Times Higher Education World Rankings. This gives it a certain element of prestige and makes it more likely that people from overseas recognise it and are more likely to apply there.
The price of student property investment in Sheffield is priced from £56,000. For that price you can receive a 9% net rental yield contracted for three years. Communal facilities such as an onsite gym and gardens make it an attractive option for students.
The other balancing factor is the supply side; you can keep abreast by reading student property guides and looking into local law changes such as the Article 4 Direction, which has been adopted in places like Nottingham, Newcastle and Leicester. Article 4 basically restricts the conversion of single-family homes into student residences, thereby limiting supply. It means that students are increasingly reliant on PBSA to satisfy their needs rather than the typical HMOs of yesteryear.
Investment Returns on Student Property
The bulk of the student properties are purchased off-plan up to a year to completion. Some of the developers offer interest paid on deposit but for the majority, that means that there will be no return on investment for the first year.
The typical net yields are between 6% to 8% per annum. Where there is rental growth we have typically seen capital growth of 3% per annum. Therefore the average inevstment return for student property will be 9% to 11% per annum. There are obviously situations where investors have recieved lower returns after 5 years when more competition occurs.
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Rental guarantee period
Some student property investments such as the one in Sheffield offer immediate returns of 9%. This is not the only consideration. You will have to ensure that the investment is attractive enough to ensure occupancy outside of the contracted period. This is where factors such as location and facilities will be of importance.
The Credibility of the Developer & Management Company
It is vitally important know who are working with, the outcomes could end up disastrous. You can conduct research on the developer to see their record of successfully completed developments. You will need to check if there were any delays, as this can affect the occupancy of your unit and the rental payments you receive. Alternatively, you can invest in something that is already built and up-and-running. This will negate any development risk. We have plenty of resale options available that are complete and tenanted.
You can avoid the grief by using an award winning student property broker, like One Touch Property Investment, who will help you avoid damaging situations through the process of conducting background research on the developer; thereby helping you to select trustworthy partners and reputable management companies to work with.
“We have helped over 200 investors acquire student property in the best locations by seeking out reliable partners to ensure that they can take their purchase decision with confidence and ease” says Arran Kerkvliet.
Ongoing management company
Usually, a management company is appointed to oversee the day-to-day running of the development. This allows investors the freedom to buy property in locations that offer the best fundamentals, rather than limiting themselves to investing nearby in case anything goes wrong. Management companies usually take a percentage of rental income. In return they handle all the tenancies and day-to-day maintenance. If you are unhappy with the management company in place, you can always replace them if agreed by the owners of the other units.
Are you curious?
Speak with an experienced consultant who will help identify suitable properties that will capture the exciting fundamental mentioned here.
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