Should you buy a flat for your student child?

BY BONNY FOURIE bronwyn.fourie@inl.co.za

It can be a good investment but beware if it’s only for a couple of years as you might not recoup your money

Location and security are the most important considerations when choosing a student property.

THE NEW academic year has begun and university students around the country are settling into their accommodation ahead of this next chapter in their lives.

Some students have been fortunate to secure places in residences provided by their institutions, and others will be staying in private, rented homes. There are also those who will live in properties specifically purchased by their parents for these university years.

For parents who are still searching for student accommodation for their children, or preparing to do so for the 2022 academic year, here is some insight from investment property experts.

TO RENT OR BUY?

Parents with the financial means to buy a property for their student children might be weighing up the choice of buying or renting. Interestingly, Shaun Dubois of Just Property says many of today’s landlords started off buying a property for their children and then, when their children graduated, they kept it and let it to others.

“Often this was the first of many properties they purchased using the equity in the initial property, and then some clever gearing, to buy multiple properties.”

However, he emphasises that purchasing would be for the more affluent as the cost of tuition is, on its own, beyond most people's means.

John Birkett, franchisee of Rawson Properties Claremont and Rawson Rentals Cape Metro Classic, says the decision would also depend on how long the student will be studying. If the period of study is short, and the plan is to sell after graduation, then buying might be a risky investment and so it would be better to rent.

“If the property is going to be used for a number of years by siblings or be let, then it is worth buying. In recent years, more parents of students have opted to rent, instead of buy, because of campus unrest and, more recently, Covid.”

LOCATION CONSIDERATIONS

Regardless of whether a student lives in a rental property or one owned by their parents, the same factors need to be considered when choosing a residential area. The location should offer easy access to campus and attract other students, Birkett says.

Dubois agrees: “The area they where they buy or rent should have good transport routes or be close to the campus.”

The area should also be safe and the property should have good security features.

TYPE OF PROPERTY

While large houses that have been converted into communal student homes have become popular, Dubois reminds parents that this does carry the additional costs of maintaining them.

“There are benefits but my advice would be a three-bedroom sectional title unit in a large estate. This is because larger estates often have a better economies of scale as they can pool the levy income better and often have superior security.”

Birkett says communal student houses (digs) and flats are the most suitable. Cheaper options are for students renting rooms in shared properties. However, most students opt for studios or one-bedroom apartments.

“Properties with modern facilities, such as new kitchens and bathrooms, and wi-fi, are most favoured.”

Parents should bear in mind that, when buying, the selected property needs to offer good investment potential. Studios and one-bed apartments carry the least risk and are always sought after.

“If there has been good growth over a short term it might be better to call in the investment, but if there has been no growth or a sale might mean a loss of capital, it might be worth renting out until the market improves, or keeping it as a long-term investment.”

Dubois believes it is best to undertake an unemotional analysis of the property when considering selling or letting it.

“There will be a need to consider the return on investment of the property, both in terms of the potential rental, and also the capital appreciation.

“As a rule, property is better to keep as a long-term investment but once the true returns are calculated an informed decision can be made.” he says.

Many courses, however, keep a child at university or college for only three to four years, and if there are no siblings to take over the flat, there could be concern about whether it is too soon to sell without losing money.

However, Dubois says a “good purchase” initially of a property under R1 million, and therefore attracting no transfer duty, could still offer a profit.

“Ideally, though, you would want to pick up a property with a below-market offer.”