Investment in student accommodation is a growing commercial asset class and holds great potential.
Investment in student accommodation is a growing commercial asset class in South Africa and holds great potential, not only for urban regeneration, but also profitable returns.
It also addresses a dire social need.
Student housing has long been an attractive property investment segment for both listed and non-listed funds in other parts of the world. Frank Reardon, divisional director at Broll Property Group Broking KwaZulu-Natal, says by South African standards it is the middle to upper end units which attract high rentals in upmarket units.
Department of Higher Education Minister Dr Blade Nzimande has said the supply of student accommodation caters for only 100 000 out of the 530 000 students and that by 2030 the ministry estimates an additional 400 000 beds will be required.
“In South Africa the exponential growth in the privately supplied student accommodation sector has seen large swathes of our inner cities being transformed through redevelopment from derelict and underperforming office blocks to well-managed student residential accommodation,” Reardon says.
The huge undersupply of student accommodation around the country and the strong income generated by government-assisted and backed leases make the sector an “extremely profitable one for developers with the requisite risk-reward appetite and development experience”.
Reardon says too these conversions have often breathed new life into CBDs and have been at the forefront of urban regeneration, largely executed by private property developers. Difficulties with sourcing finance in areas historically “red-lined” by the banks and on leases that were often shorter than three years, meant many developers steered clear of larger capital upgrades supporting long-term asset values.
SA Corporate Real Estate Fund and a few other listed property funds led the institutional foray into the segment. But the announcement of the imminent listing of the Inkunzi Student Accommodation Fund in September promises to take the sector to new heights.
Reardon adds the circumstances appear ripe for the sector to move up a level on the back of greater institutional investment. This will hopefully trigger redevelopments of existing student accommodation to institutional grade investments and create greater comfort from lenders.
But although student apartments can be a great option for property investors, Andrew Schaefer, managing director of national property management company Trafalgar, says this is dependent on their knowing which apartments to choose and how to manage their tenants.
“While off-campus student accommodation is a growing sector all over the world, and proving to be lucrative for many investors, it is vital for buyers to understand what sort of units students prefer, or they could end up with some real white elephants.”
Security is the number one concern for both students and their parents or guardians, Schaefer says, and so it pays for investors to check the safety of areas in which they are planning to buy. This includes security provisions in the specific complexes or buildings, which should preferably include biometric access control and CCTV monitoring.
Schaefer advises investors to also consider:
Complexes which offer their tenants plenty of opportunities for social interaction with other young residents.
Properties with a pool, braai facilities and possibly a clubhouse, games room, gym or other recreational facilities.
Properties that are wholly or predominantly occupied by students are also more popular than those with a mix of older residents.
Connectivity – including fast and preferably wireless internet connectivity, excellent cellphone signal and DStv-ready apartments.
A commercial property report conducted by Knight Frank predicted that 2017 would be the year when various funds diversified to cater for the country’s student housing demand.
“This is one real estate sector developers have ignored for a long time as much of the investment has been allocated to industrial, office and retail development which is evidently becoming saturated,” it said.
It added: “For various property developers, the opportunity is ripe for penetration and will alleviate social challenges faced by the future employees and employers of this economy.”
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