The UK economy has never been as talked about as it is today. Investors are monitoring the property market closely as Brexit causes the British pound to rise and fall, ensuring they time their next investment right.
Overseas investors want to enter the market at a point when sterling’s value is reduced. Meanwhile, UK investors are hoping that interest rates won’t increase, and house prices remain stable.
While feelings of uncertainty stem from the potential impact of Brexit on UK residential property, not all of the market is sensitive to the UK’s exit from the EU. In fact, some types of property investment are proven to perform better – specifically purpose-built student accommodation (PBSA).
PBSA offers investors assured net yields upwards of 7%. Add to that the low investment entry point and leases of typically 51 weeks, and student accommodation is an attractive proposition for any investor.
In this article, we discuss why PBSA is a reliable choice in times of economic uncertainty.
Global demand for student accommodation is rising
Internationally, the UK is the second most popular destination for higher education worldwide, and according to enrolment statistics, there are 458,390 international students currently attending a UK university.
This is a market that continues to grow and shows no signs of slowing down. By 2030, universities will need to increase their places by approximately 300,000 in order to facilitate future generations of students. According to UK thinktank, the Higher Education Policy Institute, the 18-year-old age group is set to further increase by 2020 – meaning that within a decade it will dramatically rise by nearly 23%.
Despite Brexit initially causing universities to fear that they may face a drought in international applicants, there has been a rise in EU and international students wanting to learn in British universities – as shown by an increase between in the number of visas issued between 2016 and 2017.
Considering the ever-increasing flow of students, the draw for international undergraduates, and the fact that most universities only offer accommodation to first-years, it’s fair to say that the market has longevity. We often overlook its value in the UK, forgetting that Britain is home to 11 of the world’s top 100 universities. This oversight and the continual increase of students has consequently meant demand for PBSA has outstripped supply. In short, there’s a huge requirement for developers to build more student properties.
A rise in university fees has triggered a change in expectations
The influx of university applications, together with the increase in fees, has also had an effect on the nature of PBSA demand. Students now paying a minimum of £9,000 per academic year (up from £3,000 just seven years ago) have a much higher expectation of their experience at university.
However, this isn’t limited to what they expect from their university course – it extends to the quality of the accommodation and value of the surrounding area.
Traditionally, students unable to secure accommodation in University halls of residence would be left with little option but to live with several other students in houses of multiple occupation (HMOs). Often a converted house dating back decades if not hundreds of years, HMOs are usually located on the outskirts of university towns and cities – meaning students need to drive or get public transport just to access local amenities, bars, restaurants and even their university.
What’s more, in an effort to maximise profits, landlords who invest in HMOs will try and make the best use of all the available space – converting what would usually be social spaces within a home (such as dining rooms and even living rooms) into additional bedrooms. It is not uncommon to find anywhere between 4 and 12 students living in an HMO. Owners of these properties can also often leave WiFi, gas, electric and even council tax to be handled by tenants, with little to no support when it comes to property management and maintenance.
And it’s not just location, privacy and hassle of organising utilities that make HMOs unattractive to students. According to the National Union of Students, 42% of UK students living in private properties are dealing with mould and damp. A further 20% are facing an infestation of rats, mice and other pests.
On the other hand, The Met, our latest purpose-built student property development in Newcastle-under-Lyme, offers students luxury accommodation on the doorstep of Keele University, Staffordshire University and Royal Stoke University Hospital. Residents benefit from spacious fully-furnished self-contained studio apartments, several communal and social spaces, as well as a hotel-style reception.
With alternatives such as these, it’s easy to see why students – and investors are moving towards living and investing in PBSA.
A track record of success during times of uncertainty
In the 2008 recession, student accommodation was one of the few asset classes that grew throughout the period. The market remained buoyant as the number of people attending universities increased, and investors recognised the opportunity that the UK student property market offered. It’s worth remembering that in addition to the growing demand for student accommodation over this period, the market also remained unaffected by the economic downturn because purpose-built student properties - in the majority of cases, cannot be purchased via a traditional mortgage - removing them from market volatility and interest rate fluctuations.
PBSA is also unaffected by employment rates: student populations will continue to increase at times of economic hardship. In fact, fewer jobs generally result in higher university application figures, as young people invest in their education to move on to more rewarding and well-paid jobs. Universities offered a secure route into the workplace during the 2008 recession – first-degree student numbers rose by 3.4% and with it demand for accommodation.
With this in mind, the UK’s departure from the EU will have little, if any, impact to the student property market, instead offering investors an opportunity to invest in UK property whilst being protected from market fluctuations. This isn’t like investing in residential property where you’re bound to management responsibilities. You’re choosing to invest in a pre-packaged solution that (in most cases) provides assured high rental returns covering at least 51 weeks of the year. To further simplify things, most of these leases are agreed at least six months prior to the start of the tenancy.
To truly appreciate how rewarding PBSA investments are, compare it to the typical investment return you would get from a savings account. In a standard savings account or ISA, you would receive an interest rate of anything from 0.5% to 1.45%. Whereas if you were to choose PBSA, you’d be making upwards of 7% net interest every year.
What’s more, you’re free to sell the property whenever and however you like, and you will have made capital appreciation on your initial investment.
Spotting a good student property investment and things to consider
Despite uncertainty around Brexit and the impact it may have on the UK property market, demand from students to study in the UK will remain strong, in turn continuing to fuel the need for good quality student property.
While HMOs may initially look like a solid investment as they are priced below market value, the upkeep and responsibility of being a landlord aren’t factored in – and more importantly, this is not where students want to live.
The ability to offer a location that is close to local amenities, and within a vibrant community surrounded by like-minded people, will always be a popular prospect for students. With an investment opportunity like the Met, investors don’t have to look far to find a property that is affordable, close to the students’ place of study and hassle-free.
Brand new opportunities to invest in student property
At Alliance Investments, all of our student developments offer 5 years of assured rental income. Fully managed apartments in our Newcastle-under-Lyme development start at just £73,500, with assured yields of 7.5% and 4% interest paid on deposited monies from exchange to completion.
If you would like to get a foothold in a market proven to withstand economic uncertainty, please get in touch. We regularly update our upcoming opportunities, so speak to a member of our team for further information.