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North West sees investor demand for student lets explode

north west property investmentA new report reveals that demand for student property in the North West has boomed over the last 12 months, with an overall 45% increase in the number of investors vying for student lets.

There’s been an explosion of interest in student property, particularly in Salford and Liverpool, according to Mistoria Group, leading student property investment specialists. The firm has seen a 60% increase in demand for student property from overseas investors; a 40% increase from UK property investors; and a 35% increase from retirees.

Mistoria claims investors have been attracted to student property because of the high yields on offer and the capital appreciation in the North West, which looks set to continue in the foreseeable future.

Mish Liyanage, Managing Director of The Mistoria Group explains: “Outperforming the residential, office and retail sectors, student property is now one of the most successful real estate asset classes, thanks to the growing demand for student bedrooms from all over the UK. The market is still drastically undersupplied in all core university cities. Student housing has become an increasingly popular investment in recent years. The sector has ballooned from a fringe investment 10 years ago to being a global market worth $200bn today.

Student housing is increasingly a global asset class. What’s driving investment is the relentless rise in student numbers worldwide. The British Council estimates by 2020, the global population of higher education students will grow by about 21 million, to roughly 190 million students overall. Increasing numbers of students are coming to Europe to study and the UK’s highly ranked universities make it the top destination. The UK is ranked No 2 in the world’s top 100 universities, after the US. The bottom line is that the provision of student housing has simply been unable to keep up with demand.

Student accommodation offers a number of attractive features to investors: yields are high as students settle for less space than other tenants; occupancy is typically high; and it is neatly counter-cyclical, as more people go to university during economic downturns.

If you are considering investing in student property, it is worth thinking about what type of property to buy – Purpose Built Student Accommodation (PBSA) or a House in Multiple Occupation (HMO), as they differ greatly. PBSAs as are self-contained units widely marketed as low-risk property investments, with ‘assured’ yields of up to 10%. Both prices and returns are inflated, while the risks are not disclosed.”

Mistoria Group has put together a list of what to consider when investing in student property:

PBSA versus HMOs – which is best?

Student pods are not considered to be individual properties and therefore cannot be bought using a mortgage. Buying a student pod will significantly narrow your unit’s potential resale market later down the line, as they are all leasehold properties and there is no established resale market. However, if you buy a HMO, you can apply for a mortgage and there is a buoyant market for this type of student property. If you are building a portfolio, you can lend on your equity in the HMO to fund further investments.

Why is it so cheap?

Cheaper student properties have significantly lower specifications, are much smaller and don’t have access to good facilities. These factors will ensure they receive minimal rental demand. More expensive units can be more than double the size, have access to great facilities and are finished to an extremely high specification. These properties will rent out easily and require less maintenance, so before you make a hasty mistake and go for the cheapest property you can find, evaluate the value for money and return on investment.

What is your target market?

There are a number of different segments within the UK’s student property market. Foreign student numbers in the UK are growing faster than ever before(see geek point 1) and are forecast to expand significantly over the next decade. With higher budgets available, overseas students will only live in the highest standard accommodation. While many agents sell what they call ‘boutique’ property, the reality is the majority of rooms are extremely small, have poor facilities and low grade finishes. With very little high quality student property available there is a huge, growing demand and therefore very high returns available for savvy investors.

Is it fully managed with 24/7 call out facility?

Ensure your student property investment is managed by a credible company opposed to just anyone. Looking after the property yourself will increase your return of investment, but do you really want all the hassles that will involve? The leading management companies will only take on the best products that are sure to attract consistently high rental demand.

Location, Location, Location!

Many student developments claim to be situated in prime locations, but actually are on the outskirts of major towns and cities. Anything other than within 15 minutes bus ride from a University is not worth your time. Students want close to campus and with easy access to leisure and recreational facilities, therefore properties located 2-3 mile catchment of the university will always rent out first. Make sure your student property has a good location otherwise your agent will struggle to rent it out, and ultimately affect your return of investment and its saleability later down the line.

Examine the developer’s reputation

Who are the developers? Who are the construction company and what’s their track record? What other Houses in Multiple Occupation (HMO) projects have they built? Make a point of looking at the people who have created the student property investment and their track record, to avoid disappointment and low occupancy rates.

 

This article first appeared on the PropertyReporter website on 6/6/14

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