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Student pods investment are not fit for purpose

A new report by property investment specialists, the Mistoria Group, stated that the ever-increasing ‘student pods’ are failing investors because they are not fit for purpose.  Thousands of student pods are being built in major university cities across the UK and offer en-suite rooms in modern city centre buildings which can be purchased for as little as £40,000. Investors are being promised a ‘rental guarantee’ for a set number of years, with management of the property and finding tenants taken care of.Student pods investment

However, Senior Manager at The Mistoria Group, Jerry O’Brien, has explained that students are not prepared to pay a premium price for pods as they are not seen as their first choice of accommodation.

“Recently, we conducted research amongst 100 second year students and over 95 per cent said that they would not consider living in a pod, when higher quality accommodation is available, at a more affordable price,” said Jerry O’Brien.

“Without doubt, the monthly rents of student pods investment are often over inflated.  These pods are marketed to investors with the promise of [an] 8-10 per cent annual return, on a relatively low capital investment.

“This return is usually based on an annual rental rise of 4 per cent and monthly rental income of between £150-£160 per month.  This annual rent increase is unrealistic, because if you remove London from the stats, then annual rent rises are between 1-2 per cent on average.”

Pods in the North West are on offer from £50,000 and are promised returns of between 8 and 10 per cent for five years while in London pods start from £82,500 with a 10 per cent guaranteed income in year one.

“Over the last three years, we estimate that between 15,000-20,000 investors have purchased student pods in the belief that they will make good returns on their investment.  In reality, the student pod market will implode as investors will soon discover that the returns are not what they were promised,” added Jerry.

“In fact two years ago, the Hong Kong Government banned the construction of student accommodation as they were failing investors.

“There have been a number of student pod schemes that have stopped paying out the guaranteed rents soon after completion, and investors have then discovered that the real market rate for the rents is much lower, reducing their yield.” Jerry believes that people who wish to invest in student property are better off buying a HMO which can provide minimum cash rental yield of 8 per cent and unlike student pods you can apply for a mortgage.

“Student pods are not considered to be individual properties and therefore it can be difficult to secure a mortgage,” added Jerry.

“What’s more, with a normal buy-to-let you can sell the property at any time on the open market, through a reputable estate agent and expect a reasonable capital appreciation.

“However, selling a student pod will encounter problems.  For example, who decides the market value? As a piece of real estate per sqm it is very expensive (double the average market value), there is no established resale market. Who will sell it? Is it an investment, or is it a piece of real estate?”

 – This was published by Today’s Landlord on February 23rd. 

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