Student Property – The Latest Investment Sweet Spot?

 

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The UK remains a top destination for education, second to the US in global education rankings.  There are currently 2.5 million students and counting in the UK, with international students rising by more than 30% over the last five years.

One property asset that has gained popularity among investors in recent years is student accommodation.Since 2011, UK student property has outperformed every other commercial property class, witha total of £6 billion having been spent inthis sector high and returns of up to 10% (nett) – a phenomenon underpinned by structural undersupply.

Structural Undersupply

According to statistics by the Universities and College Admissions Services (UCAS), the ratio of university application to acceptance in the UK is 5:1. This data is reflective of enrolment prior to the abolishment of the quota on student intake in British universities.

With the British government no longer limiting the number of students coming to study in the UK, the demand for student accommodation is set to continue outstripping supply. The Department of Business, Innovation & Skills reported in 2013 that the number of international students in higher education is forecasted to grow from 20% – 30% in the next five years.

Contrary to popular belief, university-provided student accommodation is hardly adequate, forcing students to resort to Houses in Multiple Occupation (HMO) which are limited in supply, let on a per-room basis to unrelated tenants, and, in most cases, in dire condition. Purpose Built Student Accommodation (PBSA) – which has a healthy approach to student living – is in even lower supply. With rising student numbers, this shortfall will continue to grow.

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With the increase of tuition fees in 2012, students are increasinglyon the lookout for better quality courses and accommodation. This, coupled with the fact that universities understand that good quality accommodation will help them compete on a global level, makes investment in the sector a must for the future growth of the UK’s higher education system.

What, then, are the features of a PBSA?

  • High quality living areas
  • 24-hour security
  • Walking distance to universities, F&B areas, mall/convenience stores, library, transit stops
  • Enhanced internet connectivity
  • Professionally managed
  • Communal study and recreation areas, cinema, sports facilities & gym
  • Cleaning services

A Sensible Investment?

Knight Frank and Savills have both reported that student property now stands as the fastest-growing property sector in the UK, with demand consistently exceeding supply.

The PwC Legal Emerging Trends in Real Estate 2014 report cites that student housing is one to watch, as it is judged to be better than any other property asset class in the year’s survey.

Jones Lang Lasalle, meanwhile,states that rising land values in key locations – up to 25% year-on-year increase in some areas – and rising yields are reasons why more investors are turning to the student sector. In recent years, the sector has performed well and,despite the economic downturn, student accommodation proved good value for investors, even when student numbers declined after the rise in tuition fees.

These findings reveal the immense potential that student accommodation investment has. Investors can benefit from putting their money into passive investments, enabling them to purchase fully managed properties with assured returns for a predetermined number of years.

And, while a large percentage of UK student property investors are local, there has been a steady growthin the number of foreign investors recognising the potential in this asset class vs. traditional rental property, thanks toits high rental guarantee (up to 10% for 5 years),income tax reliefs and stamp duty exemptions*. The risks are also low, given that rental is paid in advance with parents standing in as guarantors.

Student accommodation is not without its flaws and investors should think about the location of their investment carefully, considering the number of available rooms, proximity to multiple universities and demand for places on university courses. It is also crucial to invest only with credible developers.

Ultimately, the numbers don’t lie – with a record number of over 500,000 places allocated for the 2014-2015 student intake (UCAS), a 7% increase in applications from overseas students (Home Office, 2014), an overall 3% increase in student numbers (UCAS), and the pound sterling at a current low (£1 : RM5.5 vs. £1 : RM7.9 in 2006), now is a great time for investors to enter this flourishing property market.

*applies to selected countries. If you have queries regarding tax relief and stamp duty exemptions, please call us at 03-2162 2260.

UK Student Property at a Glance

Property Type UK Student Accommodation
Nett Yield Up to 10%
Guarantee 5 years
Risk Low
Individual Title Yes
Stamp Duty N/A
Income Tax Relief applicable for selected nationalities
Management Full service – rent collection & payment to owners, tenant sourcing,
Payment to owner Quarterly cycles
Capital Gains Tax N/A

 

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