Industry players say investors are likely to make more money over the next few years in the student letting market than in any other sector of the residential property market.
In the UK, returns on student accommodation already outweigh those of other buy-to-let investments. UK-based Knight Frank’s annual student accommodation index shows that investors who rented their units to students earned an average 12% total return (income and capital growth) for the year to September 2011. That compares to an average 5% total return over the same time for UK residential property overall.
SA doesn’t have official data to indicate a similar trend, but developers and private equity investors also seem to be catching on to the potential for superior returns in the local student market.
International Housing Solutions (IHS), a global private equity investor which focuses on affordable housing developments in SA, will this year bring some 1900 refurbished student beds to downtown Johannesburg.
Inner-city developer Aengus Property Holdings has around 1000 student beds in its rental housing portfolio within walking distance of Wits University and the University of Johannesburg. Most are office-to-flat conversions.
Aengus is also involved in student housing projects in Port Elizabeth and Durban. Aengus CEO Richard Rubin says latest figures from the department of higher education show that out of a total SA student population of around 530000, tertiary institutions can house only 100000 students on-campus.
Says Rubin: “Many universities no longer have enough space on their campuses to build new residences or the funds to provide additional accommodation for increasing numbers of students. So there’s an opportunity for the private sector to step into the breach.”
Rentals for semi-furnished student apartments in the Aengus portfolio (single or double occupation) typically vary from R1650 to R2350/month/student. Because students are usually keen to share apartments, income earned per square metre can be a good deal higher than in the broader buy-to-let market.
Rubin says Aengus’s student rental portfolio is delivering net rental yields in excess of 13%/year. That is despite most units being vacant for two months of the year, as leases typically span 10 months. That’s far more attractive than the average 5%/year that buy-to-let investors in the leafier suburbs of Johannesburg, Port Elizabeth and Durban generally have to be satisfied with, says Rubin.
However, the student market can be riskier than other buy-to-let sectors. Rubin says utility consumption is markedly higher. Students are also more price-sensitive than working professionals or families. In addition, it’s generally more difficult to recoup costs for breakages.
But Rubin says location is crucial. “You have to be within walking distance of universities or other tertiary institutions if you want to succeed in the student letting market.”
He says today’s students are more discerning than in the past and while they want the collegiate university experience, they are also demanding all the modern conveniences they’ve become accustomed to. These include gyms, entertainment, easy access to public transport, Wi-Fi and the like.
Though initial rental returns are somewhat lower than in bigger urban areas, developers and buy-to-let investors are also cashing in on the demand for student accommodation in the university towns of Grahamstown and Stellenbosch.
Daphne Timm, manager of Pam Golding Properties in Grahamstown, says there has been an uptick in new developments aimed at the student rental market. Bachelor units are currently selling at R495000 and typically fetch monthly rentals of R3300 while two-bedroom units sell from R625000 to R825000, depending on the distance from the university. The latter fetch a rental income of R4400- R5700/month, which provides a gross rental return of just over 8%/year.
In Stellenbosch, rental yields vary between 4,5% and 7%, depending on location, size, age and condition of the apartment. Stellenbosch area manager for Pam Golding Properties Louise Varga says two-bedroom apartments are in the greatest demand and fetch rentals of around R8000/month. Stellenbosch buy-to-let investors still appear to be earning healthy capital growth despite the overall slump in SA house prices. For example, Varga refers to a 65m² , two- bedroom unit bought near campus in 2005 for R825000 that was recently resold for R1,4m. That equates to capital growth of 10%/year.
Article source: http://www.fm.co.za/Article.aspx?id=162860