Click here to Every year there are a new batch of students enrolling and being accepted to a UK university. Since the cap on number of students accepted on each course has been ditched, there has been a slow rise in the number of UK students. Despite the tuition fee increase and uncertainty of Brexit, these numbers are hitting a record high year-on-year. Many of those students are UK residents themselves, however there has also been an increase of EU and international students.
The UK has world-renowned red brick universities that attract many students. The high number comes with a greater demand for student housing, especially for overseas students who are willing to spend a bit more on rent if it means it will enhance their university experience.
On top of this, there is a housing shortage which makes the demand even higher for residential property. With new purpose-built accommodation made for students, it reduces the steep demand for homes and leaves residential housing for families that need it.
For investors, this high demand and low supply is a goldmine, giving high yields as well as a steady income.
Why Is Purpose-Built Student Accommodation The Way Forward?
1. Students are looking for luxury
The modern student has different expectations. If it were 20 years ago, university life would consist of the typical university campus dorm or a shared house with a small box room. Today, students are attracted to more high specification accommodation. A PBSA is exactly what a student needs, providing each room with a kitchen and bathroom. There are also gyms, study rooms, common rooms and even cinema rooms that students can enjoy in house.
2. Universities can’t keep up
There is only so much room on the university campus. With thousands of new students a year, universities just can’t satisfy the demand for accommodation. This has resulted in more PBSA developments. In 2017 alone, there were 25,000 PBSA bedrooms built and 14,000 still under construction. The demand isn’t forecast to be met for another several years.
3. It is convenient for students
A PBSA is not just about the interior, the location is also taken into consideration. PBSA developments are constructed close to the city’s universities and are also within walking distance of the town centre, where students can go shopping, eat out and enjoy nightlife. There are also transport links, which many investors see as valuable, making the rent good value for money.
Summary - What Does This Mean For Investors?
As a property investor, you should consider the view of the tenant; is this a place students would want to live?
For many students, a PBSA is ideal and that is why it is such a lucrative market – the demand is high! Savvy investors who seize the opportunity of investing in areas that aren’t over-saturated will find themselves receiving high NET yields of up to 9%. That is much greater than buy-to-let yields which average at 4-6% in large cities like London.
An investment in property is considered one of the safest investments in asset classes because of the longevity, demand and tangibility of a property. For this reason, many investors make a business out of property investment, building assets, portfolios and capital.
Student property comes under this general umbrella of property investment. Although it is a fairly new concept compared to vanilla buy-to-lets (and doesn't currently have a specific mortgage in the UK), it is still one of the fastest growing specialist commercial investments in the UK.
What Is Student Accommodation?
Student accommodation is a property specifically built for students to live in. It is also known as purpose-built student accommodation in investor language. The whole point of purpose-built student accommodation is to provide students with a convenient, luxurious, and affordable alternative to the university dorms on campus.
Is There A Demand For Purpose-Built Student Accommodation?
Universities in the UK take on thousands of students a year, in 2017 UCAS reported 564,190 applications to UK universities, and they can't provide housing for all of these students. Students are also moving away from the typical HMO property with small bedrooms, overpriced rents and shared kitchen and bathroom facilities. Purpose-built accommodation caters to those who are looking for a second home whilst still being close to the campus and the city's amenities. There are also a lot more overseas students choosing to study in the UK's world renowned universities that need housing. These foreign students are also more likely to spend a little more each month on rent for the high quality and standards of a PBSA.
Off-Plan Student Property Investment Benefits
Discounted buying price - Because the property is still under construction, it can be sold at a much lower price than if it was already an existing property. This comes in useful because although student accommodation isn't particularly known for it's high capital appreciation, you can still make a great profit from selling it on, as the price of the property once construction is completed will be higher than the price you bought it for. That is one of the main advantages of off-plan investments because investors often take the increased value into consideration when choosing to buy off-plan.
More time for planning - When you invest in off-plan, the completion date is often months after the exchange of contracts (depending on how quickly you decide to purchase the unit). This leaves you with a lot of thinking time to plan your investment. If you are choosing to hire your own management or manage the property yourself, you can plan it at this stage. You can also take into account the figures in terms of rental income per annum to see where your pfofits will stand in 5 years time.
First pick - Off-plan investors get the first pick! The sooner you reserve the property, get the funds sorted, and exchange the contracts, the more stress will be taken off your shoulders. You will then be left with months of time to think about how long you want to keep the property, what you are going to do with the residual income and how you are going to sell the property after the 3-5 year lease is up.
Developers cover management - Often times, the property will be managed by a professional property management company chosen by the developer. This gives you a fully managed, hands-free investment as well as a guaranteed rental income. The management costs such as repairs, tenant sourcing and monthly rents will all be covered by the management company, which means you don't have to deal with stressful student tenants.
Brand new building - A huge benefit is the building itself. Off-plan are new developments, so the design, interior, specifications and technology of the property are new and innovative. This adds significant value to your property investment and it will make the unit more attractive to students.
Student accommodation in the UK has been a strong asset class with consistent and growing returns, making it a leading property investment for investors in the UK and all around the world. Student accommodation is a great alternative to the more traditional buy-to-lets and HMO property investments. Those strategies of property investment have been around for a long time and because there have been many successful investments in those asset classes, the demand is much lower.
On the other hand, purpose-built student accommodation is doing well, with developers choosing to build these specialist properties in fresh locations with a higher demand because of low supply. Purpose-built student accommodation differs from buy-to-let investments and HMO investments because they are usually cheaper to purchase due to these properties being off-plan. On top of this, they are especially built to suit the needs of student tenants, so they are close to the university, have study and social facilities and are a close distance to shopping and city centres.
This article will explain why purpose-built student accommodation investments are highly profitable and risk free in today’s market compared to other types of properties for tenants to rent.
Is there a demand for student accommodation?
The current market is showing no signs of decline in the demand for student housing. All across the UK there are world renowned universities where thousands of students are studying. The number of students is further increasing because more students from overseas are choosing to study in UK universities, which is one of the reasons why the standard of student accommodation is rising. Overseas students are willing to pay a lot more for a high quality purpose-built accommodation.
In 2016 around 522,000 students were accepted to UK universities through UCAS. This compares to 2015’s figures with a 7,000 increase since last year. In addition, universities in the UK are also accepting a lot more applications as the cap that limited student acceptances per course was removed a couple years ago. As student numbers within the UK increases and the amount of overseas students also increasing, the demand won’t seem to stop for student accommodation investments.
Compared to a regular buy-to-let, the demand is a lot higher. Students are looking for luxurious housing instead of a typically small bedroom with a shared kitchen. Because the supply of buy-to-lets is already satisfied, going into a new, untapped market such as purpose-built student accommodation is the way to go for an innovative, valuable investment.
Will students make reliable tenants?
A few investors who are more familiar with general buy-to-let investments and other residential properties may be a bit hesitant moving towards a student-only property due to the fact that they assume students make troublesome and unreliable tenants.
This is far from the truth when it comes to a purpose-built accommodation as it is specifically made for students. The property features many facilities such as common rooms, gyms, WiFi, study areas and more. This high-standard of specifications makes the investment more valuable, attracting tenants who are looking for a more luxurious property to rent whilst studying.
As well as the in-house facilities, purpose-built accommodation is built within walking distance from the local universities and city centres, which is ideal for students, making them more likely to spend more on the extra convenience.
As far as finding the suitable tenants, most property investment company’s and developers will include tenant sourcing in the property investment deal. This means that management of the property is included in the price you paid to invest. So, no additional costs for any repairs or maintenance as well as no stressful phone calls from tenants. It is essentially a hands-free investment ideal for those looking for a long-term passive income.
What will the returns be for purpose-built student accommodation?
As mentioned, purpose-built student accommodation is generally off-plan, which means it is on the market before construction is complete, giving the investor a massive discount. This is attractive to investors because if the time comes when they want to sell the property, it will be at a much higher price once completed. The already discounted price means an even higher profit than buying an already built HMO with low rental yields.
The management fees are also generally covered with an off-plan investment for a set number of years. Many investments in student accommodation will include a 7-9% rental return assurance for 3 years as well as the management covered by a company of the developer’s choice. The price is included in the investment price, which will save you money. If you choose to manage the property yourself or hire your own property management company, then the costs may be higher as you will have to pay the management fees out of your own pocket.
Is Purpose Built Student Accommodation A Good Investment from Sterling Woodrow Ltd
Does this mean student accommodation investment is profitable?
Depending on the location, the net rental yields per year will vary. One of the most known locations for student property investment is Manchester. This is still the home to one of UK’s leading universities but compared to 5 years ago, the demand in this area is much lower due to over-saturation of purpose-built student accommodation options. Consequently, the average yield for this area is about 5-6%. For investor’s today, this location is much more competitive and doesn’t offer the most promising returns, but the student population is still thriving.
Areas that are much less known, but still have very well renowned universities such as Sheffield, Liverpool and Huddersfield are now becoming more popular amongst investors. This is because they have prosperous universities with a high student population, but the areas is not overly saturated with accommodation for students, making it less competitive. As a result, these areas have a higher rental yield of up to 9% as more students are demanding accommodation in the area.
If you are looking for a property investment that can be medium to long-term with high demand and rental yields every year, then you can get that with a purpose-built student accommodation investment. To find the best deal on property investment speak to a property investment company who specialises in off-plan and student accommodation investments.