New statistics from real estate company JLL suggest that the student property market might be “back on track”, with almost £14 billion invested worldwide into purpose-built student accommodation making for one of the highest rates of investment in the sector in 15 years.
Alongside this, international students are returning to UK universities in record-breaking figures following the significant drop-off following the COVID-19 pandemic.
According to rw-invest.com, this means that demand for student accommodation has also soared, with a massive imbalance between supply and demand leading to a greater potential for significant returns for property investors.
Level of International Students Could Improve Investment
The decline of student accommodation in the last few years has been particularly detrimental for international students living in the UK, with many finding rental costs becoming increasingly unaffordable.
In 2022, however, the government issued around 500,000 visa grants for those studying in the UK from abroad – a notable 80% increase in comparison to pre-pandemic figures.
As well as this, there were around 105,300 Indian nationals enrolled in UK universities. Again, this is an impressive improvement, with approximately 34,300 recorded in 2019.
Following the loosening of COVID-19 restrictions in the country, predictions also suggest an increase in the number of Chinese students studying in the UK. It is only inevitable then that the student property investment market will flourish alongside these rates.
As the number of international students increases, the number of potential tenants for student properties will also increase and improve the likelihood of long-term gains for the foreseeable future.
Increase in Shortage of Beds for Students
According to StuRents, there will be a 217% increase in the shortage of beds available to students by 2025.
With an estimated 450,000 shortfall already predicted within the next two years, investors that capitalise on this gap in the market might be able to secure properties with solid growth potential and see potentially high returns.
2022 also saw UK university admissions hit an all-time high, with this year continuing the trend.
The number of UK 18-year-olds applying to an undergraduate course in 2023 ranks as the second highest on record – with 314,660 applying, down slightly from 320,420 in 2022 but significantly higher than the pre-pandemic figure of 275,300.
International demand saw a 3.1% increase in applicants of all ages – the uplift mainly boosted countries such as Nigeria (23.1%) and the United States (9.8%).
This rate of growth is expected to only increase year-by-year until 2030.
Once more, this will assist in maintaining consistently high demand and with rent overall forecasted to rise even further, rental yields will only benefit in the long run.
How to Invest in Student Property
There are two main ways of investing in student property:
Investing in an HMO or purchasing a purpose-built student accommodation.
‘Houses in Multiple Occupancies’, abbreviated as ‘HMOs’, are properties in which each room is rented to a different tenant.
Tenants will usually share amenities, such as bathrooms and kitchens, but separately pay rent.
Tenants usually share amenities, like kitchens and bathrooms, but separately pay rent.
Widely known as one of the most popular strategies, investing in HMOs can be tricky – especially for beginners.
With more tenants comes a greater potential for damage and overall more time spent managing the property.
HMOs are also becoming less common, with many cities actively trying to limit HMO conversions.
Pros of HMOs
- Higher Amount of Rental Income – With more tenants, it means that rent is typically higher. Of course, this means higher returns for investors.
- Fewer Void Periods – Again, with a higher number of tenants, if one defers on a payment, the others will likely still be able to pay.
Cons of HMOs
- Strict Legislation – Running this kind of development comes with greater responsibilities, and converting a property into an HMO involves procuring extensive licenses.
- Hard to Sell – HMOs will be difficult to sell for profit, as they are essentially only investment properties.
- High maintenance costs – HMOs are typically subject to more damage, with more tenants (students, at that) and older, generally already-worn properties.
Purpose-built student accommodations are properties specifically designed for students.
This means they usually feature facilities like high-speed Wi-Fi, on-site gyms, and building management/concierges.
With students now more likely to seek higher-quality accommodations, this kind of property has become more prevalent in recent years.
Pros of Purpose-Built Accommodation
- Affordability – Student accommodation apartments are generally smaller than typical properties and therefore come at a much more affordable rate.
- Higher Returns – Rent can be extraordinarily high for properties with premium facilities. With a combination of high rent and low stock, rental yields are typically far higher than standard residential properties.
- Consistent and Predictable Stream of Tenants – With many students requiring accommodation throughout the academic year, investors can usually see a predictable cycle of tenants, meaning there will be fewer void periods.
- Property Management Companies Make for Easier Venture – As most accommodations will come with their own management companies, investors will not have to engage with the typical landlord duties.
Cons of Purpose-Built Accommodation
- Less Capital Appreciation Over Time – Student property investments will generally provide lower rates of capital growth than traditional residential properties.
- Restricted to One Tenant Type – With this kind of property, you will only be renting to students, which limits your pool of tenants immensely.
