Student housing the new frontier for Malaysians investing in UK property

by Jonathan Adams

Student accommodation in the UK is a new firm favourite among Malaysian property investors thanks to the country’s stable economy and higher yields, industry experts said.

Property real estatement investment firm Cornerstone’s director Virata Thaivasigamony said that 73 per cent of Malaysians investing abroad in 2015 have gone into purpose-built student accommodation (PBSA) due to its 8 per cent yields.

“Between 2010 and 2015, the amount of investment grew by 10-fold. In 2010, it was about £500 million going into the industry and last year it was £6 billion, that’s more than 10-fold, because the yields are so strong,” he said in a recent interview with Malay Mail Online, referring to PBSAs which are properties built specifically for university students. They come equipped with various amenities like laundry services and recreation rooms.

Virata explained such high yields are due to a “structural undersupply” plaguing the UK property market, due to developers shying away from building new properties since the 2008 economic recession.

“So until now, there’s very little new stock coming in. All these people have to stay in the older houses and students are fighting for that as well and that’s why the yields have gone up tremendously,” he added.

He also noted that most Malaysian investors entering the market in 2015 were private investors, be it individual buyers or families, rather than the traditional corporations.

He also added that many Malaysians prefer investing in the UK property market because they already have plans to send their children to study there, making PBSAs an ideal option.

“People want to go to the UK for one thing, their kids go there. There’s about 16,000 students, Malaysian students, studying in the UK right now and there’s an additional 58,000 in local universities doing a twinning programme with the UK so they may go there in their last year or second last year. That’s a huge chunk,” he noted, adding that the UK has always been a “safe haven” for Malaysian property investors due to its stable economic condition.

Property research house Knight Frank also published a report in 2014 saying that student property will see added growth in the coming years due to more students choosing PBSAs instead of houses in multiple occupation (HMO) which are traditional properties rented out by private owners.

“Occupational demand is now on a firm upward trajectory and all core UK markets are structurally undersupplied with student accommodation,” the report said.

The report added that students today would rather pay a slight premium and opt for PBSAs compared to HMOs due to their need for more social spaces and upgraded amenities.

“Increasingly, students are choosing their accommodation for reasons beyond just price.

“They are demanding clever design that allows social groups to form and bond; such as placing kitchens and lounges at the heart of the design and not despatched to the ends of corridors,” the report quoted Keith White, managing director of CRM, UK’s largest independent student accommodation provider, as saying.

Although the residential market still takes up the biggest chunk of sales in the UK property market, PBSA’s 13 per cent market share has been exceptionally attractive to Malaysian investors due to its durability.

“We’ll always see traditional property assets taking the largest chunk but investors do see value in student accommodation, even during a recession, due to its resilience, because education is recession-proof and student accommodation is a growing special effect,” Knight Frank Malaysia’s capital market’s executive director James Buckley said in a recent phone interview with Malay Mail Online.

Buckley echoed Virata’s claims that yields for student accommodation could reach 8 per cent, with investors being able to see “immediate” returns, given that the property is completed, seeing as it is a “guaranteed investment.”

Despite the promising outlook, Virata notes that the 8 per cent yield will not remain for long as more players enter the market in the next five years.

“Ten years from now, you may not see it, five years from now even.

“The yields are compressing, they’re not going down, rents are going up, but more and more people are coming in and more and more people are buying in so the prices are going up,” he said.

This article is for information purposes only.
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