Is student property UK a good investment?
The attraction of purpose built student accommodation
The pool of global ‘travelling students’ is predicted to double to eight million by 2025, with Britain set to attract more than the US, according to the British Council. These students need to live somewhere – and can pay. So, is student accommodation in the UK a good investment?
- The effects of Coronavirus on applications and study
- Overseas and domestic applications to university
- Introduction of the two-year visa
- Preference of purpose-built student accommodation over HMOs
- Student accommodation vs. residential buy-to-lets
The effects of Coronavirus on applications and study
The Coronavirus pandemic has had a profound effect on everyday life, beyond lockdown. It has changed the way we work and has changed the way we study. Many universities will be offering a mix of online and in-person tutoring to reduce the need for contact time. However, some universities have chosen to go online-only for the foreseeable future. The University of Cambridge was the first to announce that it would hold all its courses online in the autumn, with the University of Manchester following suit shortly after. That said, 97% of universities surveyed confirmed they would hold some form on in-person teaching.
If students must attend in-person lectures and seminars, there would still be a demand for accommodation. If students have the flexibility to distance learn from home, there will be weaker demand for accommodation. Investors need to be mindful of where they choose, and that the university their investment is near is offering some sort of in-person applications.
Overseas and domestic applications to university
There were concerns that potential students may defer their place or wait a year before applying again. Overseas students pay a premium for their education and it is understandable that some are discouraged from taking up their place if most learning is to be done online. Overseas students come for the teaching quality, to immerse themselves in the culture and build connections for future employment. These things cannot be achieved by logging in to online lectures. Overseas and domestic applications
The number of 18-year-olds from the UK applying for university has risen. A record 40.5% of UK school leavers have applied for a place at university, indicating there is still a desire to get a degree. Numbers from outside of the EU are also up by 10%, suggesting that overseas students are still enticed by universities offering some sort of in-person tutoring.
Introduction of the two-year visa
In 2019, the UK announced the re-introduction of the two-year post-study work visa for international students. This will allow students two years after graduating to find a job. After two years they can switch to a skilled work visa if they meet the criteria. The visa was abolished in 2012 and was deterrent to international applicants as rival countries such as the US and Canada still had similar schemes. To abolition also contributed to the decrease in international applications.
This year, international applications have increased by 10% so it appears the two-year post-study visa is already having a positive effect. The more international students accepted into UK universities, the higher the demand for student accommodation.
Preference of purpose-built student accommodation over HMOs
The universities are using the student accommodation as part of the overall marketing plan in attracting international students.
The days of a landlord letting out a house in the suburbs to students instead of a family are starting to disappear. Instead students are opting for purpose-built student accommodation. Over the past five years, the number of first-year students opting for purpose-built student accommodation has gone up from 22% to 30%.
Purpose-built student accommodation consists of studios or en-suite cluster rooms sharing communal spaces such as kitchens and study areas. Developments crop up in prime city centre locations, or close to university campuses. They are generally newer than HMOs, with more modern features.
‘The trend has moved rapidly towards purpose-built student accommodation becoming the norm’ confirms Stride Treglown architects and project managers.
5% is Knight Frank’s forecast for like-for-like rental growth across the regions this year. The number of University applications typically outstretches the number of acceptances by 25%- 30% which shows that demand is strong, 19,000 more students. Where are they all going to live?
New accommodation must be built; the solution provides an interesting opportunity for people to joint venture with the developers to facilitate the new development of the much-needed student accommodation.
Student accommodation vs. residential buy-to-let
Student accommodation often has the advantage over residential buy to let for rental yields. Returns are often contracted for a set number of years by the management company, and as tenants are short term, there is more scope for rental growth.
Student property investments are classed as commercial, so they have a lower entry point compared to buy-to-let. This could make them more accessible for those with a limited budget. You'd need the full cash sum as they're usually cash-only.
Student accommodation is perfect suited towards overseas investors and retirees alike because the onsite management company takes care of every aspect of the property lettings and management.
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‘Our investors have been drawn to UK student accommodation investments which have proven to deliver contracted returns between 8% and 9% per annum. They relate and understand the investment because many of them have paid for their own kid’s university accommodation’ says Arran Kerkvliet of One Touch Property Investment.
Growing student numbers, positive returns and an easy to understand concept; lots of other investors felt much more comfortable with student accommodation investments than investing in the volatile stock market. Most people decided that they had to act after looking at their bank savings statement reflecting rock bottom interest on savings. How happy are you with what your hard-earned money has made this past year?
To conclude, student accommodation can be a good investment, if you choose the right city with the right fundamentals. Unforeseen disruption and government decisions can impact student numbers, but if you have chosen an attractive property in an attractive city, it should continue to attract tenants. If you wish to move forward with a student property investment, read our checklist for investing in student property next.
To find out more, we recommend you download our Student Property Guide
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