The Facts About Investing in Student Property

Written by: Invezz Newsdesk
April 23, 2020

Demand

It is certainly true that there is a lot of demand for student housing right now. Student numbers already exceed the number of available beds, and are rising rapidly. Students are also becoming pickier about where they live, meaning that demand can be disproportionately focussed on higher-quality properties, increasingly purpose-built student accommodation, and properties in better or more convenient areas. As such, in most major student markets the demand for living space for the student crowd is high.

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Demand from investors is also high. Individuals and institutions from around the world are currently pouring billions of pounds into the sector every year. This is good news for those who have already purchased investments in the sector because of the role this kind of demand could play in pushing up future prices.

Yields

One of the most commonly lauded things about student property is its ability to deliver strong yields. On the face of it, this is indeed one of the sector’s great strengths. Reports and research projects have shown that the sector as a whole does indeed beat most or all other UK assets in delivering yields. Many developers also offer a couple of years of assured rental returns after purchase, particularly on off-plan developments.

However, as noted above, today’s students can be picky about where they live. Low-quality properties or those that boast third rate locations may struggle to fill themselves with tenants even in high-demand markets. As such, you should not purchase on the strength of an assured rental period alone, but rather you should aim to be sure that demand will be there when this period ends.

The Future

Provided you put in the effort to choose the right property, then, it seems that much of the hype surrounding the student housing sector is accurate – at least right now. But what of the future? Is the bottom going to fall out of the market in a year or two and leave investors regretting the purchases that were initially so profitable? While obviously there is no crystal ball, the student sector certainly seems set to keep sitting comfortably for some time. Student numbers have been rising steadily and considerably year-on-year and Knight Frank expects this to proceed at a growth rate of 4% per year for the next 5-10 years.

The roll-out of tax changes targeting buy-to-let investors over the next few years could also help to accentuate the profitability of student property compared to some alternatives, as many student properties will manage to avoid a portion of the changes. Buying purpose-built student properties usually results in a price tag small enough to avoid the new, higher stamp duty rates. This lower price tag may also reduce or eliminate reliance on a mortgage for many buyers, softening or removing the impact of mortgage rate relief changes.