The increasing demand for student accommodation in South Africa over the last few years has opened up a number of new opportunities for investors, both locally and abroad.
With over one million students registered at private and public universities in South Africa, opportunities for property investors are seemingly infinite.
A survey by The Times of nine South African universities found:
• There are only 68419 spaces for the 140000 residence applications for 2015 countrywide.
• Wits received 34000 applications; it can accommodate 6000 students;
• The University of Cape Town received 21469 applications; it can accommodate 6600;
• Stellenbosch University received 13600 accommodation applications; it can accommodate 6200;
• The University of Pretoria can accommodate 9470 of its 49000 students on campus; and
• The University of KwaZulu-Natal is one of the institutions that can almost meet the demand for accommodation. It will house 12088 of 12727 applicants
Before investing in a student housing property certain key factors must be taken into consideration. The location where a student accommodation is situated must be easily accessible and within walking distance to their institutions and other places of interest. As most students do not own cars and rely on public transport to get around, the property where they reside needs to be close to main routes for access to public transport. A secure residential property is of paramount importance so that student tenants can be assured of a safe environment.
Because of an ongoing shortage in student accommodation, especially close to campus, and limited possibilities for further developments close to campus, these properties are extremely popular. With safety an issue and parking a huge problem, parents prefer their children to rent close to campus and are willing to pay a competitive rate to get their children into these properties. Annual increases in rent is a given, and with the cost of official university accommodation always increasing, I believe it will remain this way.
There is also continuous capital growth, mainly because of the activity in this market. Many parents prefer not to rent, but to buy a sectional title, only to sell after the last child has completed his/her studies. The result is an annual selling and buying process, with constant new and willing buyers to start the next cycle of ownership.
Increased Demand and Investment Opportunities
Universities throughout the country are faced with an ever-increasing problem as their students struggle to find suitable accommodation. Students come from all over the country to attend universities and find themselves faced with a chronic shortage of safe, secure and affordable accommodation.
Academic institutions have identified the problem as being one of great concern. Often the accommodations in question are too far from the campus, offer little in the way of transport to and from campus and tolerate unsafe, overcrowded, unhygienic accommodation, which is not conducive to studying. The lack of student housing has become one of the primary causes for poor performance and the high dropout rates at many universities in South Africa.
Rising maintenance costs, ageing residences and other problems have limited the growth options for on campus student housing, despite increased allocations for upgrades. Many universities do not have sufficient space for new developments and some have resorted to outsourcing their accommodation needs to private developers and building managers. Academic and teaching facilities are also prioritsed ahead of accommodation, as universities face major constraints and budget cuts.
Thus, as the demand for student accommodation far outweighs the supply, there are excellent investment opportunities available in this market. Although the buy-to-let market is currently depressed, student accommodation is one section of this market that is proving to be an excellent buy-to-let option, usually for a relatively small capital outlay.
There are essentially two types of student accommodation in the residential property market. The designated apartment blocks purposely built and used for student accommodation (some blocks allow owner occupation by non-students) and normal investment properties located in university precincts, which are often rented to students on a room-by-room basis.
A number of visionary property developers are rejuvenating city centres across the country by turning old office blocks into modern one-bedroom or studio apartments for rental to university students. Buildings are within walking distance of the universities and are safe, clean, well controlled in terms of management, noise and respect for property, and they provide excellent accommodation for students at a reasonable price.
Once such new development is the Green Meadows Apartments, which is situated within walking distance to the Potchefstroom Campus, the town centre and the local FET College. The development is easily accessed by bicycle and car, and transport to campus is also available with the campus shuttle passing by close to the site. Construction started in February 2015 with a completion date of December 2018 planned.
Students often prefer off-campus residencies as they offer more privacy than those located on-campus. In recent years, astute parents have realized that rather than merely paying rent for their children’s accommodation, they can invest in an asset that can yield good rental returns given the current ongoing demand. With student blocks, investors often get a great yield and there is usually on-site management to handle the day-to-day chores – thus reducing the workload for the investor. With normal residential investment properties located in university precincts, you’ll pay a regular market price to purchase them but you can then enhance your yield significantly by renting room-by-room and fully furnished.
By Drew Hook