The demand for suitable housing for students attending UK universities has continued to rise in recent years despite the predicted detrimental effects of Brexit on UK investment. Nearly approaching the final steps of Brexit, the implications of the leave vote are not exactly as predicted. The weaker pound has attracted many investors to the UK property market, especially foreign investors who want to take full advantage of the cheaper prices.
Student Housing Investment Is Soaring
In the UK, the student accommodation sector has been the top performing asset class for 5 years straight. Alternative property investments such as Purpose-Built Student Accommodation (PBSA) have become more appealing to investors in the Private Rented Sector (PRS) as buy-to-let becomes more restricted with regulations.
The PBSA investment sector also has higher yields than buy-to-let, which is one of the many reasons why investors are reducing their expensive to maintain residential portfolios and moving towards a fully-managed student accommodation investment.
The market is also changing as modern students look for higher quality housing than the traditional small, dull box room in a shared house. Today’s students expect high specification accommodation to make their experience memorable and enjoyable whilst living away from home. The luxury-style student accommodation also appeals greatly to foreign students who are more willing to pay a higher rent for an all-inclusive hotel-like way of student living.
Investors see the opportunity in this sector and that is supported by the success of these investments in previous years. In the first 3 months of 2018, the student property sector experienced £1 billion in transactions, showing just how lucrative the sector is and how willing investors are to act upon it.
Foreign Investors Seize The Opportunity To Invest In UK PBSA
A combination of the past success of PBSA investments for domestic investors and the weaker UK currency due to Brexit has enticed investors from all across the world. Individual and multi-million companies alike have expressed their interest in this UK sector, which we can see in reports. There has been a big increase in foreign activity within this sector, from wealthy investors from countries such as China, Malaysia and Singapore.
Head of Student Property at Knight Frank, James Pullan expressed his views on foreign activity in the sector and what it means by saying, “They have seen how much others have made from student housing and want to join them. More than 70% of investment is coming from overseas buyers, from sovereign wealth funds and ultra high net worth individuals [people with investable assets of more than $30m] and private equity.”
Andrew Mason from the Student Housing 2017 conference defined student property as a “truly global asset class.”
In 2016 the 5 largest deals in the UK student property sector, worth a combined total of £1.5 billion, were sold to foreign investors. Total investment in this sector that year came up to £3.1 billion, which is more than double the amount traded in 2013 and 2014. The largest deal of 2016 was made by Singapore’s Temasek, the state investment fund, who hold a portfolio of 25 student properties in a number of UK cities including Manchester and London.
Hiew Yoon Khong, chief executive of Mapletree (Temasek’s real estate arm) based in Singapore said at that time, “Student accommodation is a big business and relatively low risk.”
Usually, if investors who turnover millions of pounds each year see the potential in a particular sector, they are not often wrong. No matter where the investor is from, PBSA investment is an easily managed property investment with consistent, at the very least, returns each year.
Even those who are just looking to make a passive income on the side to save for an early retirement can benefit from the student property sector. It is important to know that there are more options than your typical buy-to-let when it comes to property investment and the UK is definitely an area you should want to put your money into.
WARNING: Only read this article if you are willing to take the truth, no matter how shocking it may be.
Student accommodation investment is the United Kingdom’s top performing asset class and it has been for 5 years, outdoing the residential property sector as well as the broader commercial sector. This asset class is such a success in the UK because it is known for many world-renowned universities.
There is a particular interest from international students, who move to the UK to study as well as international investors predominantly from Asia who see the massive potential in this lucrative sector.
London, Liverpool and Manchester are the typical areas for student accommodation investments. Whilst these areas were booming in this sector a few years ago, they are now slowly becoming over-saturated with Purpose-Built Student Accommodation (PBSA) and yields are slowly declining.
From an investors perspective, in order to build and sustain a good property portfolio, you need to target areas that are untapped. Here is a list of the predicted UK PBSA hotspots of 2018.
Huddersfield is an up-and-coming area for student property investment. As well as being crowned one of the best city in the UK for international students, there is also an undersupply of PBSA by 76%. This is great news and show the potential for growth in the medium to long-term. For less competition, high demand, low supply and high yields – invest in a student accommodation in Huddersfield.
This area is one that would probably go unnoticed by many investors, however it shouldn’t be left out. Glasgow is the home of over 109,000 students, making up around 13% of the city’s overall population. As well as having multiple universities in the area, the supply of PBSA also soared during 2017, with many new projects launching to house the high number of students. For high demand and returns, Glasgow is definitely one to keep an eye on.
Bradford is the UK’s 4th largest metropolitan district with a strong reputation for top performing academic institutions. In fact, there are plans to increase university student acceptance numbers in Bradford by 30% by the year 2024. The reason why this area is good for student accommodation investments is because there is an under-supply of PBSA as only 17.6% of students in Bradford have access to these properties. Therefore, investing in this area for will give you a sustainable investment with a lot of potential for growth.
Student property is a profitable investment for investors who want to create a diverse and sustainable portfolio. Relying on buy-to-lets is becoming less favoured by investors as house prices spike and yields are squeezed, therefore a specialist commercial investment such as one in the student sector is a good alternative.
International Students Numbers in UK Higher Education Is Increasing, Resulting In More Demand For Purpose-Built Student Accommodation
The impact of Brexit has lead many people, including investors and property enthusiasts, to discuss the effect it will have on the student accommodation investment sector. This strong preforming asset class has continued to beat all other sectors in the UK, increasing the popularity of this lucrative investment amongst private investors.
A student property investment has become such a fast-growing sector because it takes the leg-work away from the income earner, creating a passive income for anyone who invests. Purpose-built student accommodation investment features a fully-managed service, giving investors the yields they want, without the hassle of becoming a traditional landlord to stressful student tenants. These studio apartments are also a lot more luxurious, attracting international students who want a place to stay with the added class and comfort.
Rising Numbers For International Students Attending UK Universities
Although there has been some uncertainty regarding the stability of the student sector and some studies have shown slight decreases in the number of UK domicile students, where one side has fallen another has quickly risen.
Albeit there has been a slight decrease in UK students, there has been a significant increase in overseas students over the years.
The UK Council for International Student Affairs (UKCISA) released a study of the 2015-16 academic year which stated that there was a large increase in students coming from China to the UK to study in Higher Education. This exceeded all other nationalities and accounted for 91,215 international students across the UK.
The study also showed that 6% of students in UK HE are from within the EU, whilst 14% are from the rest of the world. Therefore, although the percentage of European students our universities accommodate is a lower percentage today than in the years before 2015, there has been an increase in students from other parts of the world beyond the EU since 2015.
In addition to this, a study produced by Higher Education Statistics Agency (HESA) further confirmed the increase in non-EU student numbers. The top counties that contributed to UK student numbers in 2016-17 after China were; Hong Kong (14,075), Malaysia (13,060), Nigeria (6,180), Singapore (6,060), India (5,555), and the US (5,280).
The Demand For Student Accommodation Is Still High
What does this mean for the sector and individual investors?
For investors who are discouraged from investing in the student sector due to the recent year’s decrease shouldn’t be so quick to overlook this promising sector. People are always going to go to university, and no matter what the current state of the UK economy is our universities will remain world-renowned. For now, it seems that student property investments will still be a well-performing sector throughout 2018 and onwards, because to the high demand for accommodation due to the ever-growing number of overseas students.
On top of this, PBSA is appealing to overseas students because they are willing to pay for the high specification, luxury studios to be closer to the university.
Investors should look out for this sector and the progress it is continuing to make. Hesitant people should get their hands on a fully-managed student property investment whilst they can to not miss out on the high yields and demand.
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.
A student studio or a ‘student pod’ is very different as a property investment compared to the typical buy-to-let properties that almost all property investors know all too well. Purpose-built student accommodation is an investment that many experienced property investors will see as an asset because they view it as low risk and hands-off, which allows them to develop another income stream but without having to invest significant amounts of time in the process.
PBSA then are property investments that generally yield an assured 7 - 9% rental return without the day-to-day responsibilities and tasks of maintaining and letting the properties themselves. Tenancy rates for specialist student accommodation are at around 99% which is higher than almost any other property investment.
When you are dealing with a regular buy-to-let getting and keeping paying tenants can often be an ongoing concern, but because there is a structural under-supply of specialist student accommodation within the UK, PBSAs simply will not suffer with this issue. There is characteristically only about 25% of students in the core university cities within the UK that can be catered for in private specialist student accommodation and university run accommodation compared to students looking for residential houses or HMOs (Houses of Multiple Occupation).
One thing to be aware of is that when you invest in a PBSA you are doing so for residual income – you will make your return on investment on the rental income that is generated by your tenants. Realistically you will not make a lot of money form capital appreciation, however with hands-off yields of up to 9% and 99% tenancy rates, why would you want to sell your investment?
Often when purchasing a purpose-built student accommodation, the investment will be off-plan. This gives you a good discount as the property is still under construction, and the value of the property when built will increase. On top of this, the management of the property will often be included in the purchase price - leaving you with up to a 5 year fully managed investment.
There may be circumstances in which you have to sell some investments in order to free up some cash and if you have bought a fully-managed off-plan student pod then there will likely be a buy-back option attached to the deal.
In terms of exit strategy and selling your investment there is further benefits to this investment; since PBSA is classified as a commercial property, there is no Capital Gains on resale should you enjoy some capital appreciation.
Investing in a student accommodation property will mean that you are investing in a purpose built property. It will additionally come with an increase in demand for these properties which is inevitable following the fast increase in student numbers. All students will want to rent accommodation that they can think of as a place to call home during their course and years of studies, so all the additional mod-cons are expected to be included as standard in these student accommodations.
Because of this newly established standard of student living (which has changed majorly over the past 20 years) the designers and developers of these student accommodations are adding more and more luxuries to the property developments. They are doing this to compete for the attention and business of the ever-growing student demographic. It is a wise decision to invest in a PBSA because the better standard of facilities will always continue to attract tenants year after year, with not a lot needed from you.
Student who are searching for more luxurious accommodations there will be other on site facilities such as security, launderettes, gyms, safe bicycle storage and communal areas. They may even have better technology such as tablet computers to allow occupants to control an assortment of elements in their living space such as repairs and booking communal areas. Each of these useful features will add more attraction to the potential student looking for a second home near their university.
When looking for a good deal on a student accommodation investment you need to think about picking a property that stands out from the rest. To get the most value and profits you should invest in a property that is high quality provides home comforts and an aspect of luxury that many students these days will want to spend their money on.
Property investors realise that unlike buy-to-let properties, a student accommodation will not give them income through capital growth, but instead they will rely on rental income. Some investors who want to grow their portfolio or beginners who are searching for a fairly low risk property investment strategy will benefit from student accommodation investments.
There will always be a demand for student accommodation, as shown in recent UCAS reports. In areas such as Liverpool, the student population is through the roof, which means that there is a big demand every year. You may be wondering if universities have housing on campus, why would there need to be additional accommodation outside of the campus. The truth is, the demand is still there because university dorms can't house all students. The for example, the University of Liverpool accommodation is on campus. However, they can't accommodate everyone that attends the university, so students need to look elsewhere for housing. This is where purpose-built student accommodation comes in, because it is situated in an ideal location near the university and the town centre, making it appealing to student tenants.