The student property investment market in the UK has evolved considerably in recent years, and what was a fringe investment ten years ago is now an integral part of any investment property strategy.
Our portfolio includes a wide range of student accommodation investment opportunities, with developments in the largest cities in the UK, including Liverpool, Nottingham, Glasgow, Manchester and Newcastle. Generating returns of up to 10% and guaranteed for three years, there has never been a better time to add a student investment property to your investment portfolio.
Over the course of the past five years, we have seen significant changes in UK student property market, as students look to move away from the traditional HMO (House Multiple Occupancy) model, and more towards city centre based private halls of residence.
Driven by a number of factors, the UK student property market has now moved away from traditional low quality suburban style properties, and more towards high specification, secure studio style offerings in prime city centre locations.
With students now acting as more discerning consumers, the demand is growing for the new style high spec halls of residence, and students are willing to pay a premium to live in this style of accommodation.
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So what have been the major changes in the UK student property investment sector, and what are the implications for people looking to purchase a student accommodation investment?
Over the course of the past twenty years, we have seen a huge increases in the numbers of students attending a higher education establishment in the UK. Where once attending a university was considered a privilege of the elite few, higher education is now commonplace, and last year saw over 450,000 new full time students attending a higher education establish in the UK. These figures are all the more surprising given the recent increases in annual student tuition fees.
In 2011/12, it was estimated that overseas students studying in the UK paid just under £4 billion in tuition fees to higher education establishments, in addition to approximately £6.3 billion in living expenses. Whilst competition is growing from other markets, the UK universities are highly regarded throughout the world, and demand is consistently high for places from students from outside of the UK. At present, it is estimated that the numbers of overseas students studying in the UK will increase by approximately 15-20% over the next five years. Typically, overseas students are more likely to favour the new private halls, with their high specification finishing’s and city centre locations, and in some way it could be said that they have initiated this growing demand for high quality student accommodations.
Far removed from the traditional HMO model, the new style private halls of residence reflect the growing buying power of the modern student. Complete with high specification finishes and interiors, these halls typically offer larger 'studio style' rooms for rent. Plasma TV's, Wi-Fi, high speed broadband, gymnasiums, games and entertainment rooms are all becoming standard features within the new style privately managed halls of residence. Typically, rents in the new privately managed halls are up to 75% higher than more traditional HMO's in some of the more popular student destinations, however even in less popular locations student rents tend to be around 20% higher in private halls as against HMO's.
According to the most recent Knight Frank Student Report, total investor returns for student accommodation investments in the UK averaged 7.8% per annum. Whilst these returns have slowed from the higher levels of previous years, it is estimated that the current will prove a stabilising figure in 2014. Although rental growths have averaged around 5% in recent years, it is thought this figure will average at approximately 2.7 - 3.0% next year.
It is worth noting that since 2011, the student property investment sector has outperformed all other property asset classes, as structural undersupply has resulted in positive rental growth year on year. Overall, it is thought that the yields on offer within the UK student property market are robust, and are likely to prove sustainable in the years to come.
Now we have determined that student property is a viable investment opportunity, what are the key considerations for investors looking to purchase a student buy to let property in the UK?
Q. Why should I consider student accommodation investment instead of buying a traditional buy to let property?
A. Over the course of the past 6 years we have witnessed a considerable growth in demand for student investment properties in the UK, both from UK based investors as well as those based overseas. Key to the appeal of these type of investments is the high yield on offer from student property, which currently averages between 7-10% per annum. Compared with standard residential buy to let investment whcih averages in the region of 4.5-6.0% per annum, it's easy to see why so many investors have chosen to add student investment properties to their portfolios.
Recent figures have shown that student rents throughout the UK are increasing by approximately 3.5-4.5% per annum. With overall demand for purpose built student accommodation increasing all the time from increasingly discerning students, it's no surprise that student property investment is now considered to be one of strongest performing asset classes for investors.
It is also worth noting that student accommodation investment is considered to be completely 'hands free.' In other words, the property management company will be responsible for the all aspects of the development including maintenance, sales and letting and day to day management. You simply receive your rental income, which is typically paid out quarterly in arrears from the management company. For this reason, we believe that working with the correct management company is often key to ensuring the long term success of a student property investment, as this is something we discuss in detail with clients looking to invest in student property.
Q. Are student properties sold on a freehold or leasehold basis?
A. If you are purchasing a student property in England, then the likelyhood is that you will be purchasing on a leasehold basis, and usually these will range from 125 years up to 999 years. If you are purchasing a student property in Scotland, then you will likely find that this comes with 'unfettered ownership' which is the equivalent of freehold in England.
Q. Who will manage my student property for me?
A. Over recent years the management of purpose built student developments has become a big business, and with all markets there are some companies who are better than others. As independent consultants in this sector we have worked with a large number of specialist student property management companies over the years, and today this is critical in our decision whether to market a new student project or not. As part of the consultation with our clients we will discuss the management companies and their track records in the sector.
Q. As with buying a residential buy to let property, how important is location when buying a student property investment?
A. Location is crucial to the long term success of your student property investment, however it is overly simplistic to simply look for close proximity to the local university. Other key factors which should be taken into consideration include proximity to the local shops and transport and entertainment districts. Outisde of simple proximity to the local universities, it is also worth considering the potential of the local area. For example, ask yourself if this is an up and coming area which is likely to contribute to capital appreciation over time.
Q. I am based outside of the UK, is this a problem when buying a student property?
A. Approximately 60% of our clients who invest in student properties are based outside of the UK, and everyday we speak with clients from Hong Kong, Singapore, Dubai, Malaysia, China and throughout continental Europe. The key reason that overseas clients deliberately choose us is our local market knowledge. Far from following the 'call centre' approach to property investment, we are regular visitors to the projects and sites we sell, both during the sales process and beyond into the construction phase. This ensures we are able to provide up to date information on the projects and developers we repesent, ensuring our clients make more informed decisions regarding student property investment.
Q. Should I buy an off-plan or refurbishment student property?
A. We are regularly asked by our clients which opportunity do we feel is better, and the reality is that this will vary by project, but also by the investors attitude to risk. For example, many investors in the market at present prefer to purchase a student investment properties within a new build development, seeking to capitalise on marketing incentives such as fixed period guaranteed rent returns.
The fact that many new developments also offer long term building guarantees offers an additional level of security to the overall investment. For other investors, the additional security offered bycompleted and already tenanted project surpasses the appeal of the higher rental returns in the initial period.
At present, the vast majority of projects we are bringing on to the market are comprised of new build or refurbishment developments. The developers we have chosen to work with have robust track records of delivery in the market, having consistently delivered projects on time (normally within a 3 month time frame of the originally specified date) over a period of a number of years and multiple projects.
As one of the leading providers of student property for sale in the UK, we are consistently monitoring the performance of our developers, to ensure we offer our investor clients robust and secure investment opportunities. This monitoring and vetting process starts from the launch of the project on to the market, and will continue throughout delivery and completion and finally into occupancy. By working with these developers over a number of years, we now have a good understanding of which developers and management companies consistently deliver over a prolonged period of time and multiple developments.
It is worth noting at this point that the student accommodation investment sector still very much in its infancy, and the vast majority of companies operating within it have been doing so for around five years. So if you are considering purchasing a student investment property, it is critical that you have a good understanding of the track record of both the developer and the management company.
After all, you will be relying on them to not only deliver the completed project, but to also ensure it is tenanted and well managed for many years to come. We work hard with our clients to ensure they have a good understand of not just the project, but also the developer and management company they will be relying on.
We sell large volumes of student investment properties, primarily throughout the major UK university cities, and in recent years we have experienced the phenomenal growth in the student market as investors from all over the world seek to capitalise on the growing demand for student accommodation investment in the UK.
From our offices in Manchester, we work with a large network of investors from destinations including the UK, Hong Kong, Malaysia, Singapore, China and India on a daily basis. So if you are interested in a student property for sale for investment purposes, why not contact us today to discuss your requirements in more detail?
We look forward to speaking with you!