Student Property Overview
property investment
Overview
A
ccording to leading industry analysts student property is the “best performing UK property investment sector”. When compared to other residential and commercial property, student accommodation stands out as consistently offering the highest yields for investors. Furthermore, long-term trends and decades of chronic undersupply have resulted in extremely favourable conditions for those wishing to enter the market. 2010 saw student property offering average annual returns of 13.5% (rental yield and equity growth) in a market where commercial property grew by just 8% and standard residential property fell in value by 1.3% (Source: Knight Frank Student Property Research 2012). Types of accommodation differ, but generally fall within the following: Public sector • On/off campus halls of residence managed by the academic institution Private sector • Privately operated halls of residence – some catering for a ‘boutique’ market • Shared rental of private house (House of Multiple Occupation) • Individual rental of private apartment / room • Parent-owned properties For as little as £26,000 you can own a sought-after apartment in a fully-managed boutique hall of residence, offering a guaranteed 10% income per annum plus capital gain.
“
Total returns for student
accommodation in the regions outperformed all other property sectors. The student accommodation
sector is now recognised as forming a critical component of a balanced investment portfolio.” James Pullen, head of student property for Knight Frank.
Why invest?
P
ut simply, the market is booming. The number of UK undergraduate, post-graduate and overseas students has increased greatly in recent years, and there has been a historic and increasing trend of chronic structural undersupply within a £20.5 billion sector.
2,5000,000 2009/10 2001/02
2,000,000
1990/91
1,000,000
Allied to this are a series of long-term factors resulting creating a highly favourable investment environment, including:
1980/81 500,000
1970/71
Rising student numbers (both domestic and overseas) Applications to UK universities have increased on an unprecedented scale in recent years. In the early 1990s there were just over a million people in higher education. By 2010, the number of applicants had swelled to 2.4 million – a 100% increase in twenty years. This surge in demand has also been reflected by the influx of overseas students studying in the UK – a five-fold increase between 1975 and 2008 – a figure that is expected to double once again in the next 14 years. One-in-six UK students are now non-UK nationals – many hailing from emerging economies such as China and India attracted to the high quality of universities. We are witnessing the globalisation of higher education and the UK is the second most popular destination for overseas students on the planet. Savvy parents are keen to purchase high-quality accommodation for the term of their children’s education - and hold it as an investment moving forwards. This is particularly prominent in prime university cities. There has been speculation that other factors, such as stricter visa controls, could affect the number of students coming from overseas to study, but by and large these changes will not affect universities affiliated to the Higher Education Funding Council for England (HEFCE).
0
number of students in university education
“
source national statistics
Most people associate buy-to-let investment with the purchase of one to two-bedroom flats and
trying
to make single figure returns on the residential rental market. However savvy investors now associate UK property investment with the rapidly emerging student accommodation sector which is providing extremely healthy returns.” Mark Stott, CEO, Select Property
Lack of investment by universities in residences
James Pullen, Head of student property for Knight Frank.
“
Student housing has become one of the most coveted property classes during the past two years. The combination of an
undersupplied market, low
vacancy rates and stable yields have
lured long-term investors, such as insurers and sovereign wealth funds.”
Financial Times, September 2012
The core business of universities is to provide education - not housing - and a £3 billion maintenance backlog isn’t exactly an incentive to expand. UK universities spent £262.3 million on constructing student accommodation in 2010-11, a significant drop from £369.1 million in expenditure the previous year (Source: Higher Education Statistics Agency). There has been a growing trend for universities to sell off their existing housing stock to the private sector and building budgets have fallen dramatically. Put simply, capital spending on halls of residence by universities is barely higher than in the mid-1990s, before student numbers began to spike.
Near 100% occupancy rates
There is little fear of a student property being empty as demand is so great. Some developers offer ‘no-void’ guarantees to potential investors. Leading industry analysts have reported average occupancy rates of 99% across many UK cities, a figure that truly demonstrates the current disparity between supply and demand in the sector.
Consistent rise in rental yields Average rents continue to rise year-on-year at a healthy rate (10%+ pa, compared to circa 3% with traditional buy-to-let) - as with all property markets some areas have been subject to a more rapid rise than others. According to an August 2012 survey, Hull and Lancaster, for example, have experienced 25% and 24% rises respectively. (Source: Accommodation for Students) A prime factor fuelling these increases is a change in student expectation. Students want increased levels of comfort and better facilities than was the norm a generation ago. By and large they do not wish to live in low-quality ‘digs’ and are prepared to pay more in order to spend arguably the happiest years of their lives in an environment conducive to their studies and lifestyle.
The effect of rising tuition fees? But will rising tuition fees have an impact on the sector? Whereas students used to be charged on a ‘top-up fee’ structure (up to £3,375 a year), they are now charged between
£6,000 and £9,000 a year. However, the way in which fees are structured means graduates do not have to start paying off their loans until they are earning a minimum of £21,000 per year. Payments will be on a sliding scale according to income. Overseas students will remain largely unaffected as they already pay tuition fees. There have been predictions of a ‘flight to quality’ in the sector, whereby students will expect the best quality in terms of institution, course and accommodation. There is every indication the market will remain buoyant despite the fee increases. If anything, the premium end of the market is expected to expand to meet increased demand.
A booming sector The UK student property sector is worth approximately £20 billion – and rising rapidly. Investment into the sector has boomed in recent years, with more than £750 million committed to projects in the first half of 2012, almost double the reported £375 million for the same period in 2011 (Source: CBRE). Much of this influx came from overseas and institutional investors - this autumn a fresher is just as likely to have a foreign-owned equity group as their landlord as a semiretired economic history lecturer. However, there is still room for individuals to enter the marketplace with confidence, especially in partnership with a specialist agent like Axis who have the expertise, experience, consultancy and most importantly access to the market on a range of carefully selected properties to suit an investor’s budget and specific needs. For example, it is possible to structure some student deals to fit inside the wrapper of a self-invested personal pension (SIPP), a vehicle providing far higher average returns than a traditional annuity-based pension plan.
The rise of boutique accommodation
nelson square
Developers have taken on the challenge of undersupply and widened the range and type of properties available, including high quality ‘boutique’ residences. Boutique student accommodation falls into three distinct types:
• Off-plan – newly-built developments are
•
•
relatively rare due to a lack of available land in suitable locations, but there are great investment opportunities for early investors in these complexes, as you can often negotiate a higher yield than for a ready-built property. Renovated ex-university owned residences – there has been a trend of institutions to sell some of their housing stock to developers (after all, the core business of universities is to provide education, not housing). Repurposed buildings – a range of buildings such as ex-offices, churches and municipal buildings. Bristol’s ice rink, for example, which has recently closed – has been earmarked for redevelopment as boutique student accommodation.
The student accommodation market is diversifying, and an increasing proportion of students (and their chequewriting parents) have heightened expectations, looking for residences which are stylish, safe and have a wide range of high quality facilities befitting a 21st century student lifestyle.
smithdown halls
Location Guide
S
electing the right location when investing in student accommodation is crucial – but as we have seen longterm factors have resulted in favourable investment conditions across the UK. Essentially, the savvy investor is looking to find a location which meets their specific needs in terms of rental yields and capital growth at the right price and with the appropriate level of involvement. A big advantage when investing in boutique halls of residence is all management issues are dealt with, making them ideal for a hands off investor looking to build a passive portfolio.
LONDON
London – capital returns but few opportunities Independent research shows the highest average returns are to be found in London (climbing to 15.1% in 2011 from 8.4% in the previous year). However, there is so little available land in the capital that opportunities to invest are very thin on the ground. Furthermore, the initial outlay needed to invest is considerably higher than in other UK regions, where we have seen, demand is also incredibly strong.
MANCHESTER
Regional value Fortunately there are fine opportunities to be found throughout the UK delivering double-digit yields, especially in the midlands and northern provincial cities where land, build and renovation costs are generally much lower.
BRADFORD
Manchester has the largest student population in Europe, with more than 300,000 studying with an hour’s drive of the city. The region’s ten metropolitan areas boast a GVA (Gross Value Added, similar to GDP) of £46 billion. The city has been transformed in recent years, and has world-class facilities in many fields and is now arguably the economic powerhouse of the north (Source: MIDAS). Bradford offers some of the best value student accommodation in the country, with a campus currently undergoing an £84 million redevelopment. It is also the fastest growing university in the UK with 13,000 students and several other educational institutions nearby. Liverpool is a city on the up, transformed into one of the UK’s leading business destinations by an ambitious and far-reaching regeneration programme. A city where £4 billion has been committed to physical regeneration and investor confidence is at an all-time high. With three universities and one of the biggest student populations, it was recently ranked 4th best student city in the UK (Source: MSN Travel).
LIVERPOOL
Where to invest in the UK
Map illustrating overall area ranking and number of full-time students in 2010/11 Top 10 Ranking 1 2 3 4 5 6 7 8 9 10
7 St Andrews
4
12
Edinburgh
Glasgow 11 Newcastle upon Tyne
Number of students
Durham 5
under 10,000 10,000 - 20,000
York 10
20,000 - 50,000
Manchester
50,000 - 100,000
6 20
100,000 - 250,000 250,000+
Nottingham
Birmingham 19
16 Cambridge Oxford
Bristol Cardiff 17
18 Exeter
8
13 Bath
9 Kingston
15 Bournemouth
1
London
2 14 Canterbury 3 Brighton
London Kingston Brighton Edinburgh Durham Manchester St Andrews Bristol Oxford York
These are the twenty UK cities which not only have large student populations but offer the best potential returns for investors.
St Andrews
7,000
Edinburgh 37,000
Glasgow 45,000
Newcastle 42,000
Sunderland 14,000
Durham 15,000
Bradford 15,000
Manchester 85,000
Liverpool 53,000
Nottingham 60,000
Birmingham 65,000
Cambridge 30,000
Oxford 30,000
London 426,000
Canterbury 28,000
Cardiff 30,000
Bristol 47,000
Bath 20,000
Bournemouth 18,000
Brighton 34,000
Achievable returns As we have seen, strong demand and structural undersupply mean the potential returns for student accommodation are high – in a league of their own vis-à-vis other asset classes. For example, an investment of £42,500 can buy an apartment in Smithdown Halls, just across from the legendary Penny Lane, Liverpool. With a guaranteed 10% net income of £4,250 and equity growth at 6% per annum – projected income is £3,227 – a return on investment of 78% over five years. These returns are significantly higher than those derived from traditional buy-to-let properties. Boutique student property vs ISA investment over two years Let’s say you invest £50,000 in a boutique unit at 10% net pa over three years Profit from rental income over three years = £15,000 Projected market value of unit (based on 6.5% yield as established asset) = £76,923 Total net profit (rental income + capital gain) = £41,923 Potential return on investment over three years = 83% If you’d have invested that £50,000 in an ISA over three years at a typical 2.5%, it would have grown by £3,845 – a 7.69% return. No contest!
“
According to Rod Thomas of Axis Property Investment: If you haven’t yet invested in student
property, what are you waiting for? Most UK residential investments offer something like a 3% - 5% net return but a typical student property can
deliver up to 10% pa! That’s an improvement of 200% to 300% on a typical ‘buy-to-let’, with none of the management hassle.”
Today’s students are definitely more commercially aware than ever before and
expect a higher quality of accommodation for their money.’ Martin Copeland, Sales Director, Knight Knox International
Available Properties
Borden Court
Liverpool
5 Year Summary
Standard Student Pod
Large Student Pod
Purchase Price
£28,000
£42,000
Net Income*
£2,800
£4,200
Net Yield*
10%
10%
Projected Value**
£46,666
£70,000
Equity Created
£18,666
£28,000
Net Rental
£14,000
£14,000
Total Income
£32,666
£49,000
ROI
117%
117%
• 10% yields • Low entry level from just £26,000 • Leading university city – over 57,000 students • Fully-managed hands off investment • Complete refurbishment of existing halls • High-demand halls, minutes from the universities * Guaranteed for 5 Years ** Based upon 6% Per Annum. All figures are estimates and not guaranteed.
FIND OUT MORE
➤
Dunn House
SUNDERLAND
5 Year Summary
Single studio
Double Studio
Purchase Price
£35,500
£42,500
Net Income*
£3,500
£4,250
Net Yield*
£10%
£10%
Projected Value**
£58,333
£70,833
Equity Created
£22,833
£28,333
Net Rental*
£17,500
£17,500
Total Income
£40,333
£49,583
ROI
113%
117%
• Properties starting from £35,500 • 10% NET return assured for two years • Income generating from September 2012 • Single and double luxury studios refurbished in a prime location • Communal facilities include gym, lounge areas, kitchens and laundry • Within walking distance of two university campuses *
Rents are calculated at £95 (single studio) and £115 (double studio) over 46 weeks ** Based on 6% pa growth. All figures are estimates and not guaranteed.
FIND OUT MORE
➤
Smithdown Halls 5 Year Summary
En-suite (170 sq. ft)
Purchase Price
£42,500
Net Income*
£4,250
Net Yield*
10%
Reservation Deposit
£2,000
Exchange Deposit 2012
£25,000
Completion June 2013
£15,500
Axis Finders Fee
£1,500
Plus VAT
£300
Solicitors (Est.)
£1,000
Projected Value**
£53,655
Equity Created
£11,155
Net Rental***
£22,072
Total Income
£33,227
ROI
78%
Liverpool • Invest for just £42,500! • Earn 10% assured returns in year 1 NET. • Leading university city with over 57,000 students • New build by experienced and significant construction firm with over 18 successful sites totalling over 550 units • Rental £105 per week for 52 weeks. * Year 1 at 10% Guaranteed ** Based upon 6% growth per annum. All figures are estimates and not guaranteed *** Based upon expected rent of £105 Per Week @ 52 Weeks and Maintenance and Management at £1,200 per annum
FIND OUT MORE
➤
Sunbridge Halls 5 Year Summary
Exec Studio Lux Studio
BRADFORD
En-Suite
Purchase Price
£62,900
£51,900
£39,900
Net Income***
£6,290
£5,190
£3,990
Net Yield*
10%
10%
10%
Reservation Fee
£5,000
£5,000
£5,000
Exchange Deposit
£10,000
£10,000
£10,000
Completion
£47,900
£36,900
£24,900
Axis Finders Fee
£1,500
£1,5000
£1,500
Plus VAT
£300
£300
£300
Solicitors (Est.)
£1,000
£1,000
£1,000
Total Price
£65,700
£54,700
£42,700
Projected Value**
£79,409
£65,521
£50,372
Equity Created
£16,509
£13,621
£10,472
Rental
£31,450
£25,950
£19,950
Total Income
£47,959
£39,571
£30,442
ROI
76%
76%
76%
• Entry Level: £39,900 • Fully furnished and managed investment • Ideally located just 10 minutes away from the university • Buying with a 150 year lease • Fasting Growing UK university with around 13,000 students • Currently subject to a £84,000,000 redevelopment programme * Guaranteed for 5 Years ** Based upon 6% Per Annum. All figures are estimates and not guaranteed. *** Based on the following rental values En-Suite - £85 per week Luxury Studio - £120 per week & Executive Suite - £140 per week
FIND OUT MORE
➤
Q&A
Q. Is the sale handled by UK lawyers? A. Yes, designated lawyers for these projects have been allocated. Q. Is there a management company already in place? A. Yes, designated management companies for these projects are in place.
Q. When is my rental income paid? A. This is usually paid quarterly in arrears direct into your bank account from completion
Q. Can I resell my unit? A. Yes, you can sell at any time after exchange of contract
Q. Am I taxed on this income? A. If you are a UK resident then yes. If you are a ‘non-resident’ in the UK then you are classed as an ‘overseas landlord’ and apply to the HMRC in the UK for exemption - the appointed management company will be able to help with this
Q. Can I do anything I want with my unit? A. No, each room will be leased back to the management company on a rolling agreement so that the whole building - in its entirety – can be let as student accommodation Q. Are there any restrictions if I want to sell? A. Yes, the room has to be sold as student accommodation
Why trust Axis? We appreciate the trust and confidence you need to have in Axis when considering the purchase of an investment property. This information may help you make an informed decision about whether to work with us:
Registered with The Property Ombudsman scheme (TPOs) The Property Ombudsman has powers to make awards of compensation for financial loss and/or aggravation, distress and inconvenience (where deemed appropriate). Therefore, this is critical to ensure clients have an impartial source of recompense if they believe they have been unfairly treated. Few acquisition Agents are registered with TPOs www.tpos.co.uk.
Registered with the Office of Fair Trading (OFT) Axis is registered with the Office of Fair Trading (OFT) to comply with Money Laundering Regulations which came into force on 15 December 2007.The OFT supervises registered businesses to ensure all legal obligations are met and adhered to. See www.oft.gov.uk for more information. Professional Indemnity Insurance (PI Insurance) Axis carries PI Insurance to ensure the company has the resources to pay if a penalty was awarded to you by the court. Please call +44 (0)1273 447 300 or email enquiries@axiscontact.com for details of our PI policy.
Time and experience in the marketplace Axis has been sourcing investment property for our clients since late 2005. Our senior managers have more than 50 years’ combined experience of investment property. Management Our CEO is RodThomas FCA (a Fellow of the Institute of Chartered Accountants). To verify this please call the Institute of Chartered Accountants (ICAEW) on 0906 614 0906. He is also a well-regarded speaker at national property exhibitions, workshops and seminars; and the author of ‘The Property Investment Property System’ (PIPPS), the first major home study course for aspiring property investors. He has developed his own international property portfolio over 30 years of active investment.
Website and depth of knowledge Visit www.axispropertyinvestment.com. You will find more than 400 articles, plus numerous investment guides packed with original analysis from the Axis research team. Rod regularly writes for Your Property Network magazine www. yourpropertynetwork.co.uk Level of due diligence and risk management Our current due diligence checklist runs to more than 60 points which we take into account when assessing a deal.You are welcome to review our due diligence checklist - please request a copy by calling the office on +44 1273 447 300 or email enquiries@axiscontact.com.
Axis never handles client money Axis never takes or holds money destined for your investment. It is always paid directly to either your own legal representative or the vendor’s legal representative. The only monies ever paid to Axis are the appropriate introductory/finder’s fees. Your visit is welcome The senior managers at Axis welcome client visits to our office and will happily make time to discuss your proposed investments.You can also meet us at national exhibitions and Axis workshops and training events. Please call the sales team on +44 (0)1273 447 300 if you’d like to schedule a visit. Defined legal relationship We want to make sure that you understand what our obligations – and your commitments - are when you enter into a transaction with Axis, so there is total transparency in our relationship with you. This is all carefully defined in our Client Engagement Agreement CEA), similar to any other professional’s terms of engagement letter which you can download from our website. Testimonials Most of our clients wish to keep their affairs private, but we do have some public testimonials and feedback which you are welcome to view. In certain instances we may be able to arrange for you to speak with a satisfied client. Defined complaints procedure In the unlikely event that you are ever concerned about your purchase/s, you will have access to a defined complaints procedure which ends up with the direct responsibility of the General Manager.
Membership of FIABCI Axis is a member of the International Real Estate Federation (FIABCI) and has agreed to abide by FIABCI regulations for fair dealing. Visit www.fi abci.co.uk for more information.
Disclaimer This is not an offer to solicit investment, but a presentation of available property. Actium Property Ltd is not a regulated or licensed investment or financial advisor. We do not provide financial or investment advice about whether this property is suitable or appropriate for you. We strongly recommend that you take appropriate professional advice before entering into any contract. Actium Property Ltd acts as an Agent and not a principal. If the product is suitable and you choose to invest through a SelfInvested Personal Pension (SIPP), we will introduce you to our approved Independent Financial Advisor (IFA) who is licensed to provide advice on the regulated aspect of your investment. This presentation is subject to the terms and conditions of Actium Property Ltd, contained in: a) The Client Engagement Agreement (CEA), which contains disclaimers and restriction of warranties. Clients must acknowledge agreement to the CEA prior to entering into any business with Actium Property Ltd. b) This Investment Guide and the Buyer’s Pack (available on request), which may contain specific terms and conditions that are additional to, or may vary, from the standard CEA. c) The Reservation Form. Whilst we endeavour to provide accurate, up to date and complete information, we make no warranties or representations as to the accuracy, reliability or completeness or otherwise of the information and assume no responsibility or liability for any omissions or errors. Information provided by Actium Property Ltd should be regarded as an indicator and general guide and not be relied on as a statement, recommendation or representation of fact. As with all investment products, clients should be aware that property prices can go down as well as up and that rental returns can be affected by voids, non-payment and other issues. Therefore any potential return is subject to normal investment risk and investors should be aware that they may not get back the amount invested. © COPYRIGHT 2012 Actium Property Ltd. All rights reserved worldwide. No part of this publication can be reproduced or distributed in any form or by any means, or stored in a data or retrieval systems without the prior written permission of the copyright owner.
Interested? For more information on student property investment email sales@axiscontact.com, ring +44 (0)1273 447 300 or visit www.axispropertyinvestment.com. View our latest UK buy-to-let deals http://www.axispropertyinvestment.com/available-investment-property-uk.html Axis Property Investment Gemini Business Centre 136-140 Old Shoreham Road Hove, East Sussex UK BN3 7BD
property investment