Student Accommodation Outperforms Buy To Let

Student Accommodation Outperforms Buy To Let
Australia by Julian Cohen. Why?

“The student accommodation sector has undergone a funding revolution, but the best is yet to come” says Knight Frank

Investors Are Attracted By A Demonstrable Undersupply

The Student Accommodation Sector Continually Delivers Positive Rental Growth

Having personally had to review this sector for each of my daughters, the younger of whom started her Law degree in 2013, the findings in the 2014 Knight Frank Student Property Report come as no surprise to me.

Knight Frank’s Student Property Index indicates the student accommodation sector has produced positive rental growth throughout every year of the economic downturn.  Since 2011, total returns from student accommodation has out-performed all other property asset classes, including Buy To Let.

The main reason for this is a serious under-supply of accommodation.  As a direct result, rents have been rising throughout the recession.  Forecasts indicate returns will continue to deliver higher returns in 2014 than traditional asset classes.

The report identifies that overseas students are the main reason for a huge demand in purpose built student accommodation.  They tend to want high quality accommodation and are willing to spend more to secure it.

Minister for Universities and Science, David Willetts is very much in support of this sector saying: ‘It is imperative for UK universities to maintain their global competitiveness.  This will drive the further development of high quality accommodation as part of the overall student experience package.”

Purpose Built Student Accommodation or Houses of Multiple Occupation (HMO)?

The Knight Frank report concludes that the student accommodation sector has demonstrated that, given the choice, it prefers to pay significantly more for purpose built student accommodation than HMO stock.

Growth in the purpose built student accommodation market over the past decade has given students who can’t access university halls of residence increased choice. Purpose built student accommodation offers a number of key benefits including higher quality accommodation, rents inclusive of bills, varying options on tenancy lengths, a branded product, enhanced internet connectivity, professional management, a secure environment and in general a premium living experience.

If you like property backed investment, then you should take a look at student accommodation.  Start by downloading the 2014 Knight Frank Student Property Report.

Five Things To Check Regarding Student Accommodation Investment

Whilst investment in student accommodation all sounds very encouraging, as with any property backed investment, the returns will vary across the country.  In relation to student accommodation, in no particular order, here are five things you should consider carefully, alongside your financial and legal due diligence.

1. Demand

This is basic economics.  Providing you select a university with a good reputation, and a lack of student beds, you’ll pretty much guarantee occupancy levels in the building you’re helping to fund.  In turn, it will protect your investment.

2. Return

It’s important to run a check on the current student market in your chosen area, and the costs of neighbouring developments, including the university’s own halls of residence.  It’s important, also, to include research into the rents being achieved in private housing accommodation for students, including HMOs.

3. Location

Being close to the university campus is vital.  I know this first hand.  My daughter was allocated a room in student accommodation that was a 20 minute walk away from the centre of Nottingham and the university’s main buildings.  When she learned of the location, it was as if her world had ended, even before she had even arrived for her first day!  Thankfully, a room became available in a block less than five minutes from the centre, which she snapped up.  And she loves it!

Clearly, if rooms remain empty, if can have a direct impact on your investment.  Other things that are relevant are transport links, the proximity of shops and entertainment.  It’s important to understand a university’s policy for additional accommodation.  For if another, more attractive building is erected closer to the centre, it could relegate your building and that is likely to affect your returns.

4. Management Company

You need to ensure the building is managed by an experienced, reputable company, with a proven track record.  The bigger firms will be found on the preferred lists of several universities.  Further research can be sourced from The National Code of Standards website. 

5. Investor Security

If you’re investing in an off-plan development, you need to ensure that planning permission has been granted and that legal contracts are in place to protect your investment.  Above all, any funds you deposit must be secure, often held in an escrow account or secure bank account managed by a firm of lawyers or an independent security trustee.

If You Want To Profit From Student Accommodation

SIPPclub regularly features student accommodation investment opportunities on its High Earning Property Backed SIPP Investments page.

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