INVESTING IN STUDENT PROPERTY

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INVESTING IN STUDENT PROPERTY

ost people associate buy-to-let investment with the purchase of one or two-bedroom flats and trying to make single figure returns on the residential rental market. However savvy investors now associate UK property investment with the rapidly emerging student accommodation sector which is providing extremely healthy returns. Recent research carried out by buyto-let mortgage specialist Paragon Mortgages shows that students generated the highest yields for landlords in 2011. Using independent research from The Landlords Panel from BDRC Continental, the lender found that students generated the highest average yield, followed by young singles and retired people. At the other end of the scale, non-housing allowance benefit claimants generated the lowest yields, followed by young couples and manual workers. Commenting, Nigel Terrington, Paragon Group chief executive, says: Yields are an important component of a landlords overall business plan
Ranked yield tables Landlords top 10 1 2 3 4 5 6 7 8 9 Students Young singles Retired White collar or professional workers Executive/company lets Local Housing Allowance claimants Older couples Families with children Young couples

The rapidly emerging student accommodation sector is providing extremely healthy returns
because they give a good indication of the income that the property generates. Student yields typically outperform the wider market because they are let on a per room basis, which can generate higher rental income.

10 Blue collar/manual workers

Source: Paragon Mortgages

INVESTING IN STUDENT PROPERTY

In January 2012 The Times ranked student accommodation as the top asset class in the UKs property market
James Pullan, head of student property, Knight Frank, says: There is a large structural undersupply of student accommodation in the UK. There is still strong and as yet unmet demand for properties offered to students for rents of less than 200 a week, offering investors a good opportunity in the coming years. New funding arrangements will come in September 2012 when tuition fees of up to 9,000 a year are introduced. However all the early indicators suggest that once again there will be more applications than places offered.
Total returns comparisons 2011 chart Past returns from Student Accommodation Average studio rent: Average en-suite rent for 2010/11: Average rental change (year to December 2010): Average capital value charge (year to December 2010): Rental yield (December 2010): Total Annual Return 2010: Total Annual Return 2011: Forecast Annual Return 2012:
Source: Knight Frank Student Housing Report

he fact that UK student accommodation has thrived over the past two years, rapidly outpacing the UKs conventional property market, has not gone unnoticed. In fact its fast growth and investment strength has been so prolific that in January 2012, The Times ranked student accommodation as the top asset class in the UKs property market. Knight Franks 2012 student property report added to the accolades, stating: It has outperformed every other commercial property class and delivered consistent returns throughout the economic downturn.

The market

When compared with other residential and commercial property, student property stands out as consistently offering higher returns for investors. 2010 saw student property offering annual average returns of 13.5% in a market where commercial property grew by just 8% and standard residential property fell in value by 1.3%. Average returns across the UK were 11.5% in 2011 and Knight Frank expects total returns from student property to increase in 2012 to 12% with rental yields growing by 5%.

178 112 2% 7% 6% 13% 11.5% 12%

INVESTING IN STUDENT PROPERTY

he popularity of student accommodation amongst investors is ultimately driven by consistent occupancy rates of 99% or higher and a structural undersupply. Demand for purpose built student rooms amongst students is extremely high meaning average rental rates have risen year on year, increasing by 34% between 2005 and 2010. The strongest performance in student accommodation so far has naturally been centred around the most popular university towns and cities. Durham, Cardiff, Birmingham, Liverpool and Nottingham are all good examples of where residential property prices are relatively low yet rental rates are rapidly increasing due to the popularity of the local universities and the number of students attending them.

Investors have not been slow to catch on and are capitalising on this. As a result investment in UK student accommodation has boomed over the last few years. CBRE, a world leading real estate adviser, recently released a report that stated 863 million was invested into student accommodation in 2011. This figure represents a significant increase of 93 million compared with 2010 and a staggering 120% increase on the amount invested in 2009. This growth trend is certainly continuing with CBREs latest 2012 Q1 report highlighting that 246m has already been invested into the student housing sector during the first quarter of this year. If this rate continues student accommodation investment will be 12% higher than last year.

246m has already been invested into the student housing sector during the first quarter of this year

INVESTING IN STUDENT PROPERTY

VITA Studios at The Chapel, Crosshall Street, Liverpool, L1.

he face of the UK university education and, consequently, the student accommodation market is changing. Currently there is extremely high demand to attend university - a demand that far out-strips supply. In 2010 there were over 700,000 applications for just 490,000 university places. This demand looks set to continue particularly in top-flight university cities. Knight Frank reports on a flight to quality, with students seeking the best courses for their fees. This shift in turn is predicted

to translate on to the student property market in the form of an increased demand for a higher standard of student accommodation. AEGON Asset Managements Kames Capital believes there are huge opportunities for those investing in the sector. Its head of property investment, Phil Clark, says: The alternative property sectors could offer some attractive opportunities in 2012. In particular I believe investors should consider a greater exposure to alternative sectors such as residential property, Student demand for university places exceeds supply student accommodation or healthcare property. One 800,000 of the key attractions of 700,000 these alternative sectors is 600,000 they generally have a high 500,000 income yield, an ability to 400,000 track inflation and have low 300,000 vacancy rates. 200,000 100,000 Student accommodation 0 demand for the best 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 universities is leading to Surplus demand Accepted applicants typical annual vacancy rates Source: UCAS of less than 2%.

INVESTING IN STUDENT PROPERTY

ut that is not all. The growth in university applications has been significantly influenced by a rise in overseas students which is predicted to increase even more in the next academic year. In 2010 the number of overseas students applying to UK universities increased by 12.5%, and there were even more in 2011. Experts have cited the appeal lies with the quality of university education in the UK and competitive tuition fees on a global scale. Knight Frank believes the demand is average annual tuitionkeep on growing. Its 2011 student going to fees Top host countries of international students 2010 ts property report states: Clearly, a UK university education continues to be held USA 20% UK 12% in high esteem around the world and this USA France 8% demand is set to expand exponentially in Others China 7% line with global wealth generation. The UK Australia 7% number of UK universities, by comparison, Germany 7% Ja Fr is a finite resource and looks set to remain Canada 5% Ca Ge Au Ch Japan 4% so as government budgets are constrained. All Others 30% In light of the recent increase in university tuition fees, this growing trend Source: Atlas of student mobility, Institution of International Education looks set to continue. The Sunday Times 5,000 10,000 15,000 20,000 explained this is because overseas students affected by the changes. While higher fees Percentage change in international applicants to UK ation International Unit / i-graduate higher education institutions have a different fees scale and are less may deter some domestic undergraduates and (ex.Eire) applications, the amount of EU reduce Country rankings - average annual tuition fees Top overseas students are nothost countries of international studen only forecast for overseas students Hong Kong toFar East (ex HK/Mal) remain unaffected, but are likely to USA USA 20% Malaysia increase. Australia UK 12% Middle East With numbers of EUFrance domestic and UK 8% Australasia Others students capped, universities are 7% Canada China Other Overseas Singapore Australia 7% extremely keen to market themselves Europe (ex EU) New Zealand Germany 7% Americas Ja on an international scale to attract more Netherlands Canada 5% Ca Africa overseas students. This affects the higher Ge Malaysia Japan 4% Eire end of the student accommodation China All Others 30% -5 0 15 20 Germany market as overseas students5have 10 higher a Source: UCAS Source: Atlas of student mobility, Institution of Intern tendency to choose quality purpose built 0 5,000 10,000 15,000 20,000 accommodation for a number of reasons Percentage change in international appl Source: UK Higher Education International Unit / i-graduate including security, location education institutions and facilities. higher

Overseas students have a higher tendency to choose quality purpose built accommodation for a number of reasons including security, location and facilities

EU (ex.Eire)

INVESTING IN STUDENT PROPERTY

imilar to overseas students, mature students also opt for higher quality student accommodation usually within private, purpose built developments. The changes in tuition fees will also have an impact as Knight Franks 2011 student property report explains:

Mature students also opt for higher quality student accommodation usually within private, purpose built developments

Changes in the way that higher education is provided in the UK will change the face of the student population. With universities under increasing pressure to provide more two-year degrees and work-based learning (particularly in professions such as surveying, accountancy, business and media), the number of mature, part-time and post-graduate students is likely to increase significantly, as is the average age of students. The growing demand for student accommodation, especially higher quality developments, comes at a time when this type of property is in short supply. And we all know what happens with limited supply and growing demand... It is a major opportunity for investors.

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We understand that purchasing investment property at home or abroad can developers and agents, its important to work with people you can trust. We are committed to sourcing only the very best products in our territories to deliver the desired rewards to our customers and this has been key to our success. Centred on a set of 5 key principles, we carefully select the best developments that deliver on price, payment, location, investment and security.
Please note that the information that we distribute is produced with great care and believed to be correct at the time of publishing to the best of our knowledge. Pictures, layouts and other details in this brochure are given as a general guide and may change from time any market forecasts we provide are accurate and well researched at all times, however we cannot ultimately warrant the accuracy of further agreement we may make with you in writing.

www.hanwoodholdings.com info@hanwoodholdings.com

0845 8623090