Student Property Investment Reaches Record Levels

The amount of investment in student property has hit record highs, according to a new report from commercial real estate specialists CBRE. Almost £4 billion was invested in student housing assets through the first half of this year – a figure that nearly doubles the amount of investment in this niche in 2014.

This niche asset class has risen rapidly to popularity over the past few years as high demand and low supply have created opportunities for higher returns than other, more mainstream property investments tend to offer. However, the past few months have seen more activity in the sector than ever before. Overall, the first six months of this year saw investors spend £3.98 billion on acquiring student properties.

Student property investments can indeed be lucrative, and have been singled out as the UK’s best-performing asset class. However, landlords entering the sector for the first time need to be aware that they differ from traditional buy-to-lets in a number of important ways. For example, it can be difficult to take references on tenants through the usual channels, and for this reason it is not uncommon for student landlords to require a guarantor who will pay the rent if the student fails to.

There are also some differences in the way rent tends to be collected, due to the unique financial situation of students. Many student tenants rely exclusively on student finance for their income, and this is paid in large instalments at the start of each term rather than on a regular, ongoing weekly or monthly basis. It is therefore not uncommon for students to pay rent in advance at the start of each term just after receiving their latest grant and loan instalments. At the start of the tenancy, a deposit is also required as it would be with any other rented property. As with any other buy-to-let, this is placed in a recognised protection scheme and returned at the end of the tenancy, but if the property has been damaged the landlord can keep the cost of making repairs.

Furthermore, students tend to rent accommodation on twelve month contracts. This tends to work in favour of landlords, as any other buy-to-let would normally spend some time standing empty between tenants and would make no money during this period. With student lets, however, tenancies tend to end at the start of the following academic year, just when the next set of student tenants is about to move in.

In the past, students have tended to occupy university-run accommodation in their first year and shared Houses of Multiple Occupation (HMOs) in subsequent years of study. However, a combination of short supply and increasing demand for higher living standards is causing a shift towards purpose-built student developments. These are similar to university-run accommodation but tend to be built to higher and more up-to-date standards. They offer students self-contained flats with some shared facilities in a complex designed specifically for their needs.

For investors, this is a potentially useful shift in the market. As they take the form of single units rather than shared houses, these student “pods” usually represent a more affordable entry point to the student market. However, as students are often willing to pay more for higher standards of living, they often provide very attractive returns, and are also usually fully-managed making them an ideal “hands-off” asset.

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Hopwood House are property investment specialists based in the UK, with a large portfolio of buy-to-let and student property investments

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