These blocks of high spec, boutique rooms with en-suites and flat screen TVs are indistinguishable from residential flats, except for the branding that promises a ‘boutique’ or ‘luxury’ student experience. Since 2006, the private sector has gone from providing 18% of bed spaces to 41%. The latest NUS-Unipol survey shows the average weekly rent for student accommodation in the UK now stands at £147, an 18% increase since 2012-13.
Student numbers are expected to increase for the foreseeable future, especially since George Osborne lifted the cap on how many each university can take. The latest UCAS figures show a 0.2% rise in applicants to higher education institutions for 2016/17, mainly due to a 6% rise from EU countries.
According to leading student property investment specialists, The Mistoria Group investors need to be fully aware of the pitfalls of student rooms before they invest their hard-earned cash.
Mish Liyanage, Managing Director of The Mistoria Group comments: “If investors are considering student rooms, otherwise known as student pods, they need to look at not only the opportunity, but also the risks too. Unfortunately a major disadvantage of student pods is their resale value and capital growth potential. The value of property will fluctuate with the market and the pool of potential investors is much smaller than for other types of student accommodation, such as HMOs and flats.
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?
There is also the issue of guaranteed returns of 7%. The guarantees are only as good as the person, or firm that is promising it. Investors need to weigh up whether that think providers of student pods are robust enough to stand behind the guarantee. They also need to be aware that the 7% guarantee may not stand in five years’ time, when their investment could have devalued as new developments have been released.
However, despite the big pitfalls of student pods, student property is a very profitable asset class giving robust returns. For example, in the North West a high quality HMO which will house four students, can be purchased for £160,000. The return on investment is very attractive too, with 13% (8% cash rental and 5% capital growth). Unlike student pods, you can apply for a remortgage and there is a buoyant market for this type of student property. If you are building a portfolio, you can lend on your equity in the HMO to fund further investments.”
