Investing in student housing and related facilities is fast emerging as an asset class for investors across the globe. By 2025, the number of students pursuing higher education is projected to be in the range of 250 million – 300 million, and around 10 million students are expected to migrate outside their respective countries to pursue education.
In 2013 – 2014, the number of International students in UK increased by 3% to 435,500 and currently UK is one among the preferred destinations for overseas education for students from emerging economies. The other preferred destinations for education are United States, France, Australia, Germany and Russia.
From investment viewpoint, the picture looks rosy, and the fundamentals relating to the existing opportunity is strong and very much visible. The global market for student housing property market is worth over $200 billion and understandably the higher yields in the asset class has attracted institutional investors into the field. The yield of 7% – 8.5% is the expected annual return on student property investments. Real Estate analysts feel the demand for to-let properties for students are in short supply.
The exposure into the student property market can be accomplished in three ways – directly buying a property and managing them as to-lets for students, or buying the property as a member of investor consortium and sharing the returns, or buying the shares of the public listed companies whose underlying assets are student properties.
Direct buying involves buying properties near colleges and universities, and developing or renovating those properties as to-lets for students. Also, in direct buying, significant due diligence is required in understanding the nearby school’s student profiles, ethnicity and consuming ability. The properties with gym facility and food offerings would be of great interest to overseas students.
The student housing market largely relies on two external factors – the reputation of the university and ratio of international students admitted to the overall student population. Roughly, International students occupy 15% – 20% of population in most UK universities. Also, significant amount of students migrate from other parts of UK to pursue education.
Numerous property development and management companies are marketing the student property investments as safer bets, but in reality there are numerous inherent risks associated in gaining exposure into the market. The consortium is responsible for setting up the management team for the property and slice of the returns is usually deployed for property management purposes. Other way around, when the consortium is formed by property development and management companies, there arises a risk of management being opaque to the shareholders on developments or financials. The easiest way for gaining exposure into the market would be buying those stocks whose underlying assets are student properties, but this also comes with market risk like any other stock market instruments.
Into the risk assessment, one must understand not all opportunities translate into gains. There are numerous risks in student property investments; firstly, due diligence is a necessary measure for emerging asset classes due to unavailability of organized information and regulations for such investments. Secondly, the investment classes that are suitable for institutional investors may not be right for retail investors as the need for liquidity and risk profiles are different. If the properties are to be directly managed by the investor, the time and cost spent on managing the property should be considered as opportunity cost and it can have significant impact on the returns. Thirdly, with no regulations, honoring commitments by property Development and management Companies can become trickier. Finally, in the words of a real estate agent, it is a costly affair with little support from financing agencies and organizations.