UK Student Housing has better returns than residential & commercial

Student Housing: Is it a good investment?

This week Savills published their student housing report. Here are some key findings from that report and some of personal experience and observations from working with our clients.

“Student housing continues to perform well as an asset class with higher yields than both residential and commercial property” – Savills

In the past the student market has been steered clear by investors due to the reputation of how students treat your property. However in recent years and the massive influx of students, the shortage in student housing has created a market where the returns are far higher and secure than residential and commercial property.

According to HESA between 1999 and 2012 the number of full-time students in higher education grew by 540,000, an increase of 46%.

With university halls of residence just about able to cope with the increasing numbers of first year students and private sector student accommodation operators racing to scale up, most students ended up in the private rented sector.

Average student housing rents by rightmove

Many landlords ceased the opportunity, some to accommodate for their own children and their friends. The use and availability of Buy to Let mortgages made it even easier.

Where to invest in Student Housing?

According to Savills, Bath, Brighton, Bristol, Cambridge, Cardiff, Edinburgh, London, Oxford and St Andrews are at the top of the list for investors.

Where to invest in student housing

 PropVestment’s clients have shown interests in south coast universities like Southampton and Portsmouth. In the past favourites have included Manchester and Nottingham and of course London, with investments south of the river.

 Demand for Student Housing & increase in Fees?

It was thought that student numbers would fall after the fees jumped to a maximum of £9,000 from 2012. But this only applied to domestic students.
In 2013 demand from within fell by 2.7%, However, demand from outside of Europe has continued to grow during this period, particularly from the Far East, which has seen average annual growth of 8.5% over the last 6 years.

The overall 0.4% fall in domestic student numbers between 2010-11 and 2011-12 was counterbalanced by a 1.7% increase in international students keeping student numbers
fairly stable.

Is London still the place to invest?

London Student Housing Market

London has 300,000 full-time students, and 110,000 part-time students. It is the student
accommodation market is both the largest and most active in the country.

With private sector rents forecast to continue growing, affordability for domestic students,
who make up 75% of the student body, will continue to be stretched and drive demand
into surrounding more affordable markets.

Therefore there is much opportunity in Zone 1 and Zone 2 areas of London. However in London there are many other factors that also effect the market.

PropVestment Top Tips

Invest and convert larger properties into HMOs to house multiple students. The returns are higher for the landlord, and the greater space can provide more affordable alternatives for students rather than renting a studio on Oxford Street.

Impact of University Fees on your PropVestment

Tuition Fees

Since the announcement some time ago about raising of tuition fees up to £9,000, the pros and cons have been weighed up by the media, but mostly from the perspective of the students and their overall cost of university. At PropVestment we like to consider you, the Property Investors perspective or the “PropVestor” as we like to refer to you.

A recent report by Centre for Cities shows the economic impact of the rise in UK university fees. They suggest that some local economies will be seriously hit by the rise in student fees and the loss of student numbers.

In 2007/08,  the mean total expenditure of full-time English-domiciled undergraduates was £12,254 per student across the three terms.
If this held  true in 2008/09 for the 50,100 undergraduates in Leeds, then their total spending would have been around £624 million; while the spending of the 21,800 undergraduates in Stoke would have amounted to £267 million.
Undergraduate consumer spending alone accounts for up to 10% of the total economic activity of some cities and some of this, the report says, will definitely be lost.The impact will obviously differ across cities. Even though it is estimated for Oxford and Cambridge where students account for 8-10% of economic activity, the institutes will have full admission and places will not be lost therefore the volumes will not suffer. Other cities may fair much worse.
In terms of rental demand, this will change proportional to university places, students need a place to stay regardless. However the amount that students can budget for rents will be much lower and there will be a battle similar to the one with house prices at the moment, where landlords hold out too high rents and affordability is low, this could result in the most stubborn Landlords left with vacant properties, and students out of accommodation.Rising student numbers has been one of the reasons why the buy-to-let market has boomed in recent years, but will pricey tuition fees be damaging to landlords?Whilst the majority of students have historically moved away from home to study, will this practice continue in light of tuition fee increases?
The student population in major university towns could plummet, leading to a catastrophic decline in demand for student housing. Many Landlords have their portfolios quite concentrated on student housing and may suffer with lack of diversification across their portfolio in terms of property type and geographical locations.
Many student properties could be made available for the standard private rented sector, however, the yields on student properties do tend to be higher. Student landlords need to be aware of changing market conditions and to regularly review their business strategies in order that they do not get caught with a glut of unwanted property.

Students staying close to home

Home insurance company LV thinks that there could be flash selling of investment properties in university towns.
The UK university fee increase, together with declining numbers of 18 to 24-year-olds in the general population, will see a 14% fall in higher education numbers over the next decade.
They forecast that the number of students living in the city of Newcastle will slump by 52% in the next nine years – a loss of 15,000 students. It also predicts the student population of Sunderland will fall by 35%.
Other cities which will feel the impact include Swansea, Portsmouth, Stoke-on-Trent and Nottingham, with university student population forecast to decline by 40% in these areas.
Student life is set to be transformed over the next decade, as the impact of rising tuition fees forces university students to reassess their finances and living arrangements.
LV suggests that by 2020, 52% of students will choose a local university and stay with their parents. Only twenty-one per cent of UK full time students currently live at home.

PropVestment conclusion

Overall the rise in tuition fees will impact student landlords, and we are not here to argue the righteousness of university decisions. Like all the best in business landlords much take precautions and adapt their strategies according to changes in the market. In all fairness many landlords, our clients included have enjoyed the student boom and milked rents well, in particular those using HMOs. We advice landlord over exposed to certain geographical areas to research and find the up to date information about the universities future plans, fee charges and expansions. Being ahead of the game and well informed is the fore most priority to be successful. Use this information to adapt your target, maybe start advertising earlier or more strongly for the 2012 intake of students.

If the university has a high percentage of foreign students, circumstances may not change as much as they will still be paying the same higher fees. Alternatively if its one of the top universities or around London, there is so much demand for student living and also young professionals, the impact will be less extensive.
There may be a greater demand for less exclusive or ex-local rental properties and as students budget and trade down to affordable or larger properties with higher occupancy possibilities. From our experience these can be the most appropriate properties for students.
The impact on the whole UK property market will not be much and if anything may help local people afford rentals more, where in recent years they may have been out priced by the influx of students.

We at PropVestment are experienced in Buy To Let and Student rentals so for any advise do not hesitate to contact us, for a no obligation consultation. We have great means to advertise to students, manage lets, legal matters and HMO regulations as well as a tight network of letting agents. Read our buy to let blog.

Have a read of our other articles on Student Housing:

PropVestment in Daily Mail: Wise councils: Spacious and solid, ex-local authority houses can be a very good deal
PropVestment Guide: Top Tips for Property Listings
Today: New Laws for Landlords, All Tenancy agreements upto £100k become ASTs
HMO: Huge Money Opportunity
Landlords : How to protect against bad tenants

Sources:
http://www.centreforcities.org/assets/files/2011%20Research/11-05-05%20Starter%20for%20ten.pdf
http://planetproperty.wordpress.com/2011/04/19/university-fees-the-end-of-buy-to-let/
http://planetproperty.wordpress.com/2011/05/05/university-cities-will-be-hit-hard-by-student-fee-rises/

PropVestment in Daily Mail: Wise councils: Spacious and solid, ex-local authority houses can be a very good deal

By Graham Norwood.   Original article http://bit.ly/cjK5J9
Last updated at 9:56 AM on 5th November 2010

Thirty years ago, in October 1980, Margaret Thatcher introduced the right for council house tenants to buy their homes.

Millions took her up on the offer, and there are now around two-and-a-half million former council flats and houses in the private sector.

Read more

HMO: Huge Money Opportunity?

Although Multiple Occupancy can achieve huge rewards in the form of rents, in particular student lets, Landlords must take the required legal procedures to ensure it is all above board. In our experience it is easy to gain over 50% premium on rental income under HMO. There are now professional agents that can take care of the managements and legalities but here are some basics you must know. Licenses are only £335, so get them and don’t risk fines or prosecution when the outlay is so small.

The returns can significant, raising the ROI above any other residential investment, letting are very easy through university listing or sites such as www.spareroom.com.  Please get the relevant advice and don’t take short cuts in the pursuit of profits.

After reading this nitty gritty we offer a fantastic investment opportunity at the bottom of the article.

Here is the Basics

What is an HMO?

HMO stands for House in Multiple Occupation and generally refers to one of the following:

  • A house split into bedsits
  • A house or flat share where each tenant has their own tenancy agreement
  • Students living in shared accommodation Read more

What the new shorthold tenancy classifications for UK private property landlords means

  • Deposit guarantee scheme for all properties earning upto £100k rental per annum
  • Failure to do so in 14days means no Section 21 (eviction order) can be served
  • Fines up to three times the original deposit
  • Student accommodation and multiple occupancy also affected
  • Advice: Use a reputable and experience lettings agent, email info@propvestment.com for our quote and special offers.
  • New legislation mainly affects high rental properties in particularly in London
  • Extra Red Tape that makes it difficult for honest, reputable Landlords

Read more

Landlords: Ways to be Green and Save Money

For all Landlords, in particular when lets are to students, all inclusive ASTs, or Flat Shares it is very important to try keep the costs down for pure profiteering reasons as well as doing our bit to be green. Being environmentally friendly in the long run really pays off financially and you can use being green as a marketing tool also. Being green can be expensive but there are a few cheap alternatives that can really have a big impact.

Here are our Top Tips… Read more

Risks and Rewards: Renting to Students?

On the day of A-Level results, the day when a school kid becomes a legal student. This opens out a whole new influx on potential tenants as they make the transition from “living with parents” to “renting.”

There has been a rise in Student Lets; the latest “accommodationforstudents.com” research shows increase of 4.3% on last year.

The average weekly student rent now stands at £65.30, 4.3% higher than last year (£62.61). The previous two years’ increases were just 1.6% and 1.7%. Since 2004, when the average rent was £52.44, rents have risen 25%.

Rents are highest in the South East, which hosts 8 out of the 10 most expensive student locations. London leads the way with an average rent of over £100 per week, with Guildford, Uxbridge, Cambridge, Middlesex, Egham and Brighton all weighing in with rents of over £80 per week. The stats are based on nearly 60,000 properties in 83 cities across the UK.

Some traditional English redbrick universities: Liverpool (£55.49), Birmingham (£57.30), Manchester (£60.12), and Sheffield (£60.14) are still below the average UK weekly student rent of £65.30.

Best value locations in terms of student rental accommodation are Middlesbrough, Stoke-on-Trent and Stockton with average weekly rents of £41.47, £42.65 and £44.71 respectively.

So as a Landlord, the most promising locations are in the South East, in particular London, with its wide choice of universities and colleges. Also London attracts many foreign students, they our paying huge international rates for tuition fee so it’s a safe assumption to say they are willing to pay higher prices and come from well off backgrounds.

Example

One of our clients has a 3 bedroom flat it SE1, which has now been converted into a 4 bed. We have been able to achieve £599 per room per month, leaving the client with over £800 per month cash surplus after paying the buy-to-let mortgage.

We source the tenants from post graduate universities and colleges, what we have found is that many students like to pay 3 months in advance due to budgeting reasons and they pay it like they do their tuition on a term to term basis. This further aid the Landlord’s cash flow. What other private let in our economy is in a position to pay 3 month advances on rent.

There are of course risks involved like any other AST (Assured Short hold tenancy). Primarily rent payment, but if your contracts take references, take on parental guarantees and if possible insurance, your risk is dramatically reduced. In our case study, we have never had any students default on payments.

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Landlord’s bewared; specify who is responsible for council tax, TV license and bills. Council tax is another source of advantage, Students are exempt. As a Landlord make sure the council is informed of the occupants of your property and advise the students on the simple procedure.

Provide your property with broadband, its only around £100 a year and that dramatically increases the rentablity of your property for students.

Older students are always more reliable, however there are many freshman available, those who have to go through Clearing, have little or no chance to get University Halls and have to look in the private market.

Don’t worry if there is not immediate responses from adverts, as it gets closer to the start of courses the interest grow exponentially, and desperation grows and properties are taken of the market.

Renting to students is cheap and cheerful, provide good quality basics, desks, chairs, a lamp and majority are happy and you won’t find any complains, they are always too busy partying or working to care for minor niggles.

Overall the returns out weigh the risks, managed well and reducing the risks, can create huge cash flow surpluses.

Email me for more info on our service info@propvestment.com

Sources include personal experience, Landlordzone.co.uk and accomodationforstudents.com