Discover all the key data behind the UK's highest yielding property asset
The ever-growing reputation of purpose built student accommodation as the UK’s highest yielding property asset has seen total investment in the sector increase consistently over the past few years.
Indeed, the sector overtook the US as the largest student property market for the first time in 2015 and was heralded as a World Class Asset.
In 2016, the sector saw investment activity of some £3.1 billion. This made it the fifth consecutive year with investment of over £3 billion, and the second best year in terms of total activity, after 2015.
The figures also show the popularity of student property with overseas investors. The proportion of international investment flowing into the market has almost doubled in the last two years. Overseas money accounted for 64% of all activity in 2016 – compared with just 35% in 2014.
This emphasises the strong global reputation of UK student property as a resilient asset, unaffected by 2016’s Brexit referendum.
We have an exclusive partnership with the UK’s only NHBC-certified student property developer, with 16 operational developments.
This ensures that all our properties are built to the highest possible standards, with unique 10-year structural warranties on new builds.
Our established business model provides high NET income from day one, fixed for 10 years, and incentivises our developer to maximise income generation.
It is home to 51 of the top 200 universities in Europe, including the top three institutions on the continent (Times Higher Education), illustrating the strong international reputation of the UK’s educational facilities.
This also explains why the UK is the second most popular study location for the ever-growing community of international students – a key demographic for purpose built student accommodation.
The hike in tuition fees last year has also given England’s universities a budget surplus of over £1.8 billion.
This has facilitated the largest campus redevelopment boom since the 1960s, with universities using this collateral to increase the appeal of their institutions to national and international students.
UK student numbers have been on a consistent upwards trajectory for decades, with a increase by 30% in the last decade. Apart from a couple of anomalies – the most recent being after the tuition fee hike in 2012 – growth has been steady and consistent.
This has included record intake in each of the last four years, while four consecutive years of growth after the onset of the Great Recession in 2008 illustrate the sector’s resilience to wider economic stresses.
A major recent catalyst for this expansion is new government legislation, which enabled universities to accept 30,000 extra students in 2014.
In 2015, national intake restrictions were removed altogether, meaning that universities can now accept as many students as they want. This has resulted in record student numbers for the last four years in a row, and growth shows no signs of slowing down.
There is a critical shortage of purpose built student accommodation across a number of UK university towns and cities, with just over a quarter of students on average having access to their top housing option.
There are, however, huge regional disparities from city to city, which is why location is central to strong yield delivery
While well-known cities, like London, Manchester and Liverpool, are oversaturated with purpose built student accommodation – the latter with half of all students already living in PBSA – there are many prime regional cities with supply levels close to or even below 20%.
As you can see from the map opposite, all of our UK student property locations have sizeable undersupply gaps – ensuring sustained high demand.
With student numbers continuing to increase and the residential housing shortages limiting student access to the private rented sector, these undersupply gaps are widening rather than narrowing in many areas.
The construction sector has long failed to keep pace with the UK’s fast-growing population, with a shortfall of 1.8 million residential homes expected by 2025 (RICS).
This shortage means that the 707,000 students currently living in the private rented sector are occupying housing desperately needed by local families.
As a result, there have been direct attempts by many local authorities to move the student population into purpose built accommodation. Article 4 legislation, for example, limits the number of homes permitted to house multiple tenants.
There is thus firm support for the development of new student properties, especially in areas where there are critical undersupply levels.
A truly sustainable property investment has to work for all stakeholders.
By focusing on critically undersupplied student destinations, we ensure that our properties are welcomed by everyone involved.
In our investment model, both the developer and buyers benefit from the same thing too – sustained demand and consistent rental income growth.
Late call outs are common for anything from a broken boiler to a leaking tap or lost key; void periods are both hassle and expense, while late rental payments are a headache nobody wants.
The yields at the end of all this average at around 4-6% gross – and that’s before the ever-mounting costs.
These yields have also been further chipped away by a variety of government measures introduced to address the UK’s housing shortage – increased Stamp Duty, the removal of previous tax incentives and tougher HMO licensing laws.
As a result of this increasing complexity and worsening returns, we hear every day from landlords looking to sell their buy-to-let property and purchase purpose student accommodation.
These properties are built with students in mind, are close to campus and have a range of appealing onsite facilities. This is why they are the most popular accommodation option among students, with many happy to pay a premium.
As large developments, economies of scale also enable onsite management around the clock – ensuring an effortless income for investors.
This demand, popularity and economies of scale mean that yields are as high as 10% NET – that’s after all costs.
What’s more, these yields are predetermined, contracted and fixed in place for up to 10 years. That means no uncertainties, no effort and no headaches.
The large scale of purpose built student accommodation – typically 100+ rooms – enables developers to use economies of scale to drive down costs.
Such costs include the purchase of development sites, with the value of the freehold spread across multiple unit owners.
This ensures that investors are able to own a property asset in a prime location, securing long-term demand and consistent rental income growth.
Another key benefit of these economies of scale is related to management. Again, with the costs divided between multiple investors, it is cost-effective for a dedicated onsite team to be positioned onsite around the clock.
This is far more efficient than parachuting in a company when required and enhances service standards at the same time.
Other areas that benefit from economies of scale includes the purchase, maintenance and repair of furnishings, fixtures and fittings.
With more than 2,500 operational units, our partner developer continues to drive down the operational costs of all operational properties.
Purpose built student properties often come with specialist management teams positioned onsite around the clock.
These teams are responsible for all operational duties and ensure high standards of marketing, maintenance and tenant care.
It is their job to source tenants and maintain 100% occupancy levels at all times, as well as to collect all rents, chase late payments and pay utility bills.
Monthly site inspections are also carried out to catch maintenance issues before they become serious. This work ensures that all accommodation and facilities remain attractive to students in the long term, and sustains the property’s resale value.
Onsite management teams can be found in the vast majority of our student properties. Consequently, our buyers receive an effortless income with none of the costs or complications that characterise buy-to-let alternatives.
Experience tells us that the closer a development is to campus, the more sought after and better occupied it will be. Students will also pay a good premium for proximity.
It’s all about taking pole position; we need to be in the premier location near the university, whatever other developers come up with (see map opposite).
By limiting the number of alternative purpose built student units, between our property and the university, we are able to ensure sustained high demand – with all our operational developments experiencing 100% occupancy from day 1.
This is not possible in larger, traditionally popular cities, like Manchester or Liverpool, where the student property sectors are already close to saturation, or with buy-to-let properties, with the premium of freeholds in such areas restrictive to yield generation.
Our property investors sign a fixed income agreement directly with our partner developer. This effectively makes them your tenant for 10 years – and what better tenant could you ask for?
There are firm incentives in place for this award-winning company to ensure that all management, maintenance, repairs and replacements are conducted promptly and professionally.
Like you, they benefit from positive rental growth and work to ensure that demand and standards remain high – meaning you don’t have to worry about damage or depreciation of your investment.
This 10-year agreement is also transferable at resale, ensuring the appeal of your property to new buyers whenever you choose to sell – with yield compression allowing for up to 40% capital growth.
To discourage multiple property ownership, 2016 saw the introduction of a surcharge on the Stamp Duty payable on second residential homes.
With purpose built student accommodation classified as commercial, it is not subject to Stamp Duty below £150,000 – with purchase prices from £49,950, this is comfortably below the threshold.
In the same year, the blanket 10% wear and tear allowance for landlords was scrapped, with only documented expenses being acceptable.
April 2017 saw the start of a 4-year phasing out of mortgage repayments being allowable against income tax; the allowance will be cut by 25% each year until its final disappearance in 2020.
With such high yields available, there has been an influx of inexperienced developers completely new to the sector. Such companies are rarely accredited, usually have very few assets and are often laden with debt.
By partnering exclusively with the UK’s only NHBC-certified student property developer, we are able to avoid all the risks associated with poor construction.
Our established investment model and 10-year fixed income periods also mitigates all the risks associated with low occupancy and resale.
The UK’s transparent legal system means that our property laws are about as straightforward as they come. Property registration is simple and there is no culture of corruption.
All UK property professionals are obliged to act in accordance with legislation and regulatory authorities.
And unlike many other countries, the UK actively welcomes overseas investors and places no restrictions on them whatsoever.
Not at all – property investment from overseas is extremely welcome in the UK, with no negative restrictions or regulations put in your way.
And the completely hands-off nature of our investments, with all day to day issues taken care of by the onsite management teams, means that all our owners enjoy effortless incomes, whether they’re in Aberdeen, Accra or Auckland.
There’s nothing like local knowledge to smooth your investment path. However, to save you trawling through dozens of websites, we would be delighted to introduce you to our specialist legal and tax accountancy partners.
Not necessarily – automatic payment will be made every quarter or half (depending on your property) into the account of your choice anywhere in the world.
However, we will pay you in UK pounds, so it makes sense to open a sterling account. This way, you can build up a sterling fund and choose your moment to convert into your local currency when the exchange rate is at its most favourable.
Until relatively recently they did, but round about the millennium the involvement of the private sector began to be encouraged.
Today, purpose built represents around 25% of the student accommodation market and only about 19% of that is university stock.
It has been the UK’s highest yielding property asset since 2011.
UK student numbers are at an all-time high, and have been rising steadily for decades. As a result, top quality accommodation for them is at a premium and the need for it doesn’t have a chance of being satisfied for generations.
Resale prospects are also excellent, with ample opportunity for significant capital growth.
It tends to be one of the terms of planning permission that only students can live in one of our properties.
Their purchase is for investment purposes only, not for owner occupation.
Mainly in that they require no effort whatsoever on your part. We have done all the research, so you can rest assured that the rental demand for your property is there and will continue long into the future.
A professional management team is onsite 24/7. They take care of everything – letting, vetting and rent collection along with all maintenance, repairs and replacements. This comes at no extra charge.
Only in the positive sense of the term; they represent an excellent opportunity for investors, in terms of purchase price, high fixed NET yields for 10 years and lucrative resale options.
Because they are classed as commercial property and can only be occupied by bona fide students, their value isn’t subject to the volatility and competitiveness of the residential property market.
No, because the banks and other lenders have strict lending criteria, one of which is property size.
It’s certainly not because the institutions think student property is a bad investment; quite the reverse, blue chip companies like Aviva are big players in the sector.
But with prices from £45,950, one of our units could be yours in its entirety for around the same as a buy-to-let mortgage deposit.
The only property purchase tax in the UK is Stamp Duty Land Tax. However, since our student properties are classified as commercial, they are not subject to Stamp Duty below £150,000, comfortably above our usual threshold.
No, not if you’re buying one of ours. There are plenty of places in the UK we would recommend you avoid, especially the big cities, but all our properties are deliberately sited in locations where long-term demand is matched only by chronic undersupply.
Location is what makes your 10-year fixed income period possible; rest assured that all our properties have been handpicked after extensive research and due diligence.
Given that, your sole benchmark is your budget, as our prices vary but our locations’ suitability do not.
You don’t – it’s automatically transferred to the account of your choice quarterly in arrears by the property’s management company. There is nothing you need to do.
Firstly, it’s the exhaustive research and due diligence we undertake with our developer partner to handpick locations on the basis of long-term student demand and their consequent long-term investor appeal.
Secondly, our developer’s unique business model means their profit doesn’t come from an inflated initial sale price; rather it comes from sustained, regular rental income growth over a long period of time.
They won’t cost you a penny during your 10-year fixed income period. Your purchase price is all you will pay; all other outgoings are the responsibility of the developer’s appointed management company.
Nothing at all during your 10-year fixed income period; it’s all been taken care of by the developer and management company.
For the 10-year fixed income term it doesn’t really matter to you whether it’s occupied or not, as your yields are pre-contracted, set in stone and totally independent of rental performance.
But the onsite management team are fully incentivised to ensure maximum occupancy; in fact, they’re reliant on it, so you’ll never need to worry on the tenancy score.
In theory, you can sell the minute you take ownership. In practice, our consultants can advise you when is the ideal time to sell to maximise capital growth.
But most importantly, if your circumstances change unexpectedly, you will be perfectly free to sell whenever you wish.
They will, because there will be 240 years left on the leasehold of a property which has been delivering 8-10% NET yields for the previous 10 years.
Student property is classed as commercial property, which is judged and valued purely on its delivery of NET yield; proven performance of this calibre is very highly sought-after.
You certainly can, and to generations beyond that. Your property comes with a 250-year lease which is fully transferable either on resale or by bequest.
Purpose Built Student Accommodation (PBSA) offers lucrative investment yields. While many assets in alternative industry sectors are underperforming, investing in student accommodation has returned the best yields in UK property since 2011 (Savills).
Globally, investment in student housing has risen from $3.4 billion to $7.2 billion between 2007 and 2013, while in the UK, student property investment hit record levels in 2015 – overtaking the US for the first time.
Although up until now it is mostly institutional investors that have led worldwide student housing investment (accounting for 57% of overall sales volume), a refreshingly different business model has today made this rewarding sector more accessible and appealing to individual private investors.
On the world stage, the higher education sector is currently being valued at approximately $164 billion, and predictions are that this figure will reach $200 billion in the next 10 years.
UK university intake has been at record levels in each of the last four years, with consistent growth for decades. This trend has been enhanced further by the removal of previous intake caps, enabling universities to take in an unlimited number of new students.
Specifically in terms of international students, this population has doubled in size in the last 10 years and Knight Frank predicts growth of up to 20% over the next five years.
Given the uncertainty of buy-to-let, investing in student accommodation is all the more appealing.
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