Should I invest in student accommodation?
Investment in buy-to-let student accommodation has become increasingly popular in the UK due to continued growth in student numbers and a historic shortage of quality accommodation.
The influx of international students to the UK, many from wealthy families, has also created demand for a higher standard of student living, particularly in towns and cities with top performing universities.
Furthermore, higher stamp duty and regulatory changes for houses of multiple occupation (HMO) are pushing buy-to-let investors towards purpose-built student accommodation (PBSA).
What is purpose-built student accommodation?
PBSA developments are high-volume, fully-managed developments, usually containing flats and studio apartments along with a host of communal facilities.
They aim to offer a hassle-free student living experience, where a single monthly payment covers rent, bills and other services like broadband.
The facilities on offer in purpose-built student accommodation are growing increasingly luxurious and may include gymnasiums, cinema rooms, and rooftop gardens, as well a concierge service.
This move towards quality means investors in PBSA will usually have no trouble finding tenants, particularly as this role is outsourced to a specialist property management company.
Why is PBSA so attractive to investors?
PBSA can offer investors a reliable and predictable monthly income with minimal stress. While there are regional variations driven by property prices, PBSA investments usually create yields of 8% to 10%, even higher in some areas. Developers of new-build PBSA will typically offer an incentive by guaranteeing this level of return for a period of up to five years.
Compare this to a typical 3% to 5% net yield for traditional buy-to-let investment and you can see the appeal. Another big attraction is the tax treatment of PBSA. It’s classed as commercial property so there’s currently no stamp duty on purchases below £150,000 and no capital gains tax when you sell PBSA.
Will growth in student accommodation investment continue?
A recent report by Savills indicated that investment in student accommodation would rise by 17% this year. There remains a huge shortage of available accommodation in some university towns. Unite Group, one of the UK’s biggest student accommodation providers, said it expects to see rents rise between 3% and 3.5% in the 2019/2020 and 2020/2021 academic years.
The relatively low number of EU students in the UK (just 6% of full-time UK students according to UCAS) means Brexit is unlikely to impact demand for student rooms, with demand from UK and international students remaining stable. The UK education sector remains a strong brand for overseas students and their families.
However, like any investment opportunity, investing in student accommodation is not without its pitfalls. Any investor will need to aware how an ever-fluctuating property market could impact on the resale value and capital growth of a student accommodation investment.
Authored by Melvin Lunn
Melvin has over 20 years’ experience in global property sales and investment. For more information on investment opportunities in the student accommodation sector contact him 03333 034 767.
The above article is written as a guide only and does not constitute financial advice. Professional advice should be taken before entering into any property investment or financial agreement.
