Suitable student accommodation is in short supply countrywide following the Covid-19 pandemic, which creates lucrative opportunities for landlords and investors.
Alexandria Procter of DigsConnect.com, a platform that links potential landlords and students, says students are back in the lecture halls as a result of the ongoing return to relative normality. This is putting increased pressure on accommodation options in the areas surrounding tertiary education campuses in cities around the country.
“Student accommodation has emerged as one of the most exciting real estate trends in South Africa. With the current levels of demand, there are opportunities for existing landlords and future investors to get involved,” says Procter.
“There is a massive shortage in student accommodation, and although big accommodation providers are increasing capacity, there are many opportunities for private landlords to benefit from the situation by meeting the demand. Many private landlords on our books are looking at ways to invest in more suitable rental stock.”
Advantages
Procter says the benefits of letting to students include:
- The achievable yield is higher than on other rental properties.
- In many instances, parents or guardians are paying the monthly rental to keep their children in safe accommodation, reducing the risk of non-payment.
- Student tenants provide a guaranteed 10 months of rental income, leaving your property unoccupied over the sought-after holiday period, which you can fill with lucrative short-term lets.
Sound returns
According to Makhosini Ndlovu, Product Head at FNB Commercial Property Finance, student accommodation is one segment of the South African property industry that has consistently bucked volatility trends for many years.
“While global economic concerns are weighing on investors in most sectors of the domestic property market, those invested in student accommodation continue to reap solid returns. Despite one or two shifts in recent years, student accommodation remains a very positive investment prospect,” says Ndlovu.
However, he says there are some fairly significant differences in how investors and developers should approach the sector, depending on the type and location of the universities and their accommodation services.
“Yields remain very good for investors in accommodation close to some universities like the University of Cape Town (UCT). Despite a number of approvals being granted for the development of student accommodation around UCT, domestic and international demand for study opportunities there will likely maintain the demand for accommodation in the coming years, irrespective of how many such developments take place in the near future.”
Affordability
Ndlovu says the provision of undergraduate student funding through the National Student Financial Aid Scheme (NSFAS) has been a key contributor to the strength of the student accommodation sector over the past three years.
“NSFAS has made it possible for more young South Africans to attend university. In addition, the rental subsidies included in most NSFAS funding mean prospective students can afford to rent accommodation close to their chosen campus. This was one of the main challenges many faced before accessing NSFAS loans.”
He says that this has been a critical factor in the continued viability of student accommodation as an investment opportunity. The NSFAS subsidies offset the relatively significant drop in demand for accommodation near campus from privately funded students during the Covid-19 pandemic. Many of these students returned home when lockdowns forced the closure of campuses and the move to remote learning.
“This trend hasn’t yet completely reversed, so it’s possible that many of these students will stay at home for the duration of their studies. However, the demand from privately funded students for accommodation closer to universities will likely pick up again with future student intakes. This creates an even more compelling argument for investment and development in this sector.”
Student needs
Ndlovu says developers – and landlords - need to be aware that the accommodation requirements of most students have shifted significantly in recent years.
“Cheap, dormitory style residences are no longer acceptable - even as low-rental options. Students expect greater privacy and more focus on quality lifestyle spaces, sustainable building management practices, and excellent and reliable connectivity.”
He says successful student accommodation providers will have to find ways of balancing these often costly student needs with the affordability expectations most students still have.
Proximity to campus is arguably the key determinant of a student’s choice of accommodation. Procter says this is not only for easy access to facilities and classes but also because the campus is the hub of student life.
However, Ndlovu says many students have to move to private accommodation because their homes don’t have the necessary facilities and connectivity. If courses are digital, students may not need to live near their campus, but reliable connectivity will undoubtedly become an even more critical decision driver. This means investment in connectivity along with the security of electricity supply is not negotiable for student accommodation providers.
“Education remains one of the essential keys that South Africa’s government has to use to unlock sustainable economic development,” Ndlovu says.
“The value and opportunities in the student accommodation market are likely to continue growing for many years to come. Taking full advantage of that market requires an understanding of the ways in which it is constantly shifting and innovating to achieve the right balance between investment, rising operational costs, and healthy returns.”
Writer : Sarah-Jane Meyer