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The 7 dos and don’ts of investing in UK Student Property

UK property investing advice
Nov 24, 2016

Student numbers in the UK have been rising consistently, with record intake in each of the last three years.

In 2015, we witnessed the removal of a government cap on student numbers. This resulted in an annual 3% increase of new student numbers in 2016.

So, with a total student population of approximately 2.5 million attending around 130 universities and colleges of higher education, small wonder PBSA investment is a popular option, avoiding many buy to let problems.

Don’t Buy-to-Let

Buy-to-Let: costly, time intensive property investment

The trouble with the average Buy-to-Let (BTL) property is that it often requires costly conversion or refurbishment prior to letting.

What’s more, with the UK housing shortage expected to reach 1. 8 million by 2025, the government is tightening regulations and increasing tax responsibilities for the purchase of BTL property.

In truth, BTL investments today are more complex and expensive than ever before.

Student buy to let properties don’t run themselves.

Owners either have to pay out for a property management service, or be prepared for panicky phone calls at all hours when something goes wrong.

Maintenance and repair costs have to be met, and then there’s the not inconsiderable matter of finding suitable tenants and collecting rents.

Considering the time-consuming and uncertain nature of BTL, yields are actually rather disappointing when compared to the alternatives.

Do consider Purpose Built Student Accommodation (PBSA)

Since 2011, PBSA has been the UK’s highest yielding property sector (Knight Frank), and was awarded World Class Asset status in 2015 by the Wall Street Journal.

This is because the consistent growth in the size of the UK student population has far outstripped the capacity of university-owned halls of residence to accommodate their students.

Average occupancy levels of 99% (CBRE) have also been helped by “Article 4” legislation in many university locations across the country.

This limits student access to residential property, effectively funnelling them into PBSA.

Purpose Built Student Accommodation is also classified as commercial property and is therefore exempt from Stamp Duty up to £150,000.

The sector is fundamentally Brexit-proof and, as proved in 2008/9, recession-proof.

With a UK average of 74% of students unable to find a place in a dedicated student block, the long term demand for high quality, purpose built accommodation in prime, close-to-campus locations is assured.

Do your homework

Prime Student Property investment location

The overall supply of PBSA is generally pretty low; the UK average ratio of PBSA beds to the live-in student body is just 26%.

However, in some cities development has been rapid and is approaching potential oversupply – Liverpool (39%) and Manchester (40%) being cases in point.

The trick is to find the optimum balance between an ambitious, expanding university town, which is popular with students, and an area where few of them have access to suitable accommodation

Don’t go with an inexperienced developer

PBSA is a specialist sector where an in-depth knowledge of student needs and expectations is essential.

This enables properties to be delivered on schedule to the highest standards.

Significant economies of scale also allow smart developers to buy prime close-to-campus sites at a reasonable price, and to build, furnish and equip them to a high standard whilst offering a 10-year new build warranty.

You should also seek out a developer with long-term goals for the property.

Look for signs that they will profit from long-term rental income growth, rather than at the initial sale.

This way, you will both have common interests in full alignment.

The NHBC (National House Building Council) is an accreditation body with the primary purpose to raise the construction standards of new homes in the UK in order to offer enhanced protection to homeowners.

It is strongly advised that you select an NHBC-certified developer, regardless of the property sector you are looking to invest in.

Do investigate long term, fixed income contracts

10-year fixed income property investing

A lot of PBSA is offered as a short-term, medium yield investment opportunity. This is largely because the developers want to develop, sell and move on to the next project.

However, there are PBSA opportunities that offer higher yields over longer fixed income terms.

These higher yielding investments also often give you a 250-year leasehold with excellent prospects for capital growth on resale.

Do be aware of your resale options

Before making any property investment, it is always important to understand your options when it comes to selling on.

What counts is the long-term appeal of your asset to prospective purchasers – and yields are crucial.

In the case of PBSA, the appeal is its continuing ability to generate sustained high NET yields; anything above 7% will always be attractive to property investors.

If the property has been delivering this yield for a set number of years, this will further enhance its appeal.

Furthermore, if the yield is fixed – i.e. the investor receives it regardless of performance or costs – this then becomes highly sought after.

This is why it’s important that your fixed income period is fully transferable at any time.

It’s interesting to note that 80% of the £5.9bn transacted in the UK PBSA sector in 2015 went towards the purchase of operational units.

Do have your PBSA professionally managed

Professionally managed property investments

A management team will ensure the 24/7 smooth and efficient running of your property.

The aim is to remove all the burdens and headaches of traditional Buy-to-Let ownership from buyers.

Management are responsible for all aspects of on-the-spot property maintenance – from a blown fuse to a storm-damaged roof.

Local knowledge and established relationships allow them priority access to building, trade and utilities professionals.

Because most PBSA consists of over 100 units, it makes economic sense for the management company to install a dedicated team onsite, rather than parachute them in.

Similarly, central bulk buying ensures the swift supply of replacement materials at greatly reduced prices.

All these economies contribute significantly to high yields.

A daily front-of-house presence enables a positive working relationship to be established between tenants and management.

This, coupled with regular formal property inspections, helps with the early identification of potential problems. Such day to day attention to the fabric of the property is crucial to its long term asset value.

Management will also provide a full letting and reletting service to ensure maximum occupancy rates. They will collect all rental payments and transfer the yields automatically to the buyer’s chosen account.

And, because there’s a year-round onsite presence, even during off-peak periods, property security is tight.

The whole management package is designed and implemented to provide owners with an effortless income and a highly resaleable long term asset.

Purpose Built Student Accommodation: everyone wins

Developed for the specific needs of today’s university student, PBSA has proved to be the highest yielding UK property sector for three years in a row (Knight Frank).

It’s popular with students, as it is comfortably furnished, well equipped and offers excellent onsite facilities. And its prime, close-to-campus location puts it in the middle of a large student community for the ideal balance between socialising and study.

It’s popular with universities because the days of university-built halls of residence are long gone; they’re simply unaffordable for institutional budgets. PBSA allows the universities to attract the best students and concentrate on their academic priorities.

It’s popular with local authorities, who are under severe pressure with a predicted housing shortfall of 1.8 million by 2025. Buy-to-Let properties for student occupation don’t earn them any council tax (students are exempt) and are increasingly seen to be socially unjust. Furthermore, PBSA revitalises run-down areas.

It’s popular with local residents, who see an increase in the availability of family accommodation and an easing of premium rental prices.

And it’s popular with investors, as PBSA delivers higher yields than Buy-to-Let, but, because it’s professionally managed onsite 24/7, requires no effort on their part. Demand is assured because of a critical undersupply of student rooms – on average, only 26% of students have access to PBSA.

View our UK Student Properties.


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1 Comment
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    Phil - 07/12/2016

    great article!

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