The student property investment market is one of the highest performing asset classes when it comes to investments in the UK. The market for buy to let student property has grown rapidly over recent years, with the UK student market having outgrown the US student property sector in 2015. Today, anyone who’s considering building a property portfolio in the UK won’t ignore student property investments, recognising the potential that this type of investment has to offer.
If you’re new to the UK property market and want to find out more about this popular investment option, or you’re an experienced investor and unsure if student property investment is right for you, take a look at this detailed guide to investing in student accommodation.
What is student property investment?
Before asking yourself whether buying student accommodation is a good investment, you need to understand the basics. So what exactly is student property investment? Student accommodation as an investment refers to purchasing and owning a property for the purpose of letting it out to tenants and generating income through rental payments.
Types of student property investment
The two most popular ways to invest in student property are to purchase a purpose-built student property or to buy a student house. For a long time, buying a student house was viewed as the best option for anyone interested in student investments.
Rather than owning an investment in the form of a one-bedroom property, with a student house, you could rent your property out to multiple tenants at once. This way, investors could receive larger amounts of rental income along with better security. If one of their student tenants was to miss a rental payment, the investor would still receive income through rent paid by the other members of the household.
While this type of investment might seem like a perfect option all round, there are, however, downsides to investing in shared student housing. Students in the UK are now less inclined to settle for shared student housing as an accommodation option. Instead, they favour the luxury aspect of living in private studio apartments that are close to their university campus and come complete with amenities like high-speed internet. This is why purpose-built student accommodation is now the most superior option for anyone looking to invest in student buy to let.
Purpose-built student accommodation, or PBSA, refers to a student property that has been created for the sole purpose of being let out to student tenants. Unlike buying old-fashioned student houses, investors don’t need to spend money renovating the property, as PBSA’s will come complete with modern, up-to-date designs from the beginning.
Overseas investment into PBSA
UK student property investment is not only a popular venture for those living in the UK, but also for investors from around the globe. According to research conducted by Knight Frank in 2017, 70% of UK student investment came from overseas buyers. All five of 2016’s biggest student property deals were sold to international investors, with the largest deal being 25 student buildings across the UK which were purchased by a Singapore state investment fund. This highlights the strength of the student housing market in the UK, and the overall benefit it has to the country’s economy.
Is student accommodation a good investment?
So now that you understand what student property investment is and know about its popularity, you need to be clear on the benefits behind it. There’s a reason why buy to let student accommodation is such a popular investment option in the UK. This all boils down to three of the major elements of a successful investment – demand, rental yields, and capital growth.
No property venture can succeed without demand. High levels of demand are essential in order to receive consistent rental income from a regular stream of tenants. In the UK, student investment properties are in high demand due to large student populations. Attending university is now much more popular than it has been in the past, with record numbers of people having been accepted onto a university course in 2018.
During 2017 and 2018, a total of 2.3 million students were recorded within UK institutions according to the HESA Student Record. Out of these high UK student numbers, a large proportion are from overseas countries. In 2016/17, the UK welcomed around 450,000 students. These high international student numbers are what puts the United Kingdom on the map as the second most popular study destination in the world. Students from China, Hong Kong, India, Malaysia and the US make up 38% of enrolment within universities in the UK.
Returns are a major factor of any investment. After all, without making a return on your investment, what are you getting out of the venture? One of the reasons why so many are attracted to student property investment in the UK is because rental yields are usually very high.
Student properties, especially those in the form of a studio apartment, tend to have cheaper purchase prices than residential properties. While purchase prices are low, however, rental costs remain considerably high, especially with more luxury student accommodation. This combination of low property prices and high rental costs results in some very attractive yields for student property investment, reaching as high as 8% or more in the right location.
Along with demand and rental returns, capital appreciation is also a big part of all investment strategies and another major element to consider when finding a UK student accommodation investment. Capital appreciation is when a property grows in value over time. This is an important part of your strategy, as it ensures you make a significant return on your investment when you choose to sell it further down the line, maximising your overall returns alongside your rental income.
By the end of 2019, the student property sector is estimated to be worth £53.2 billion — that’s a 72 per cent rise in value since 2014. With the student property market growing in value so rapidly, and the student population ever increasing, things are looking bright when it comes to the future of student property investment.
How to invest in student property effectively
To invest in student property effectively, there are certain things you need to know about and systems to follow to ensure you’re getting the most out of your investment.
Research your target tenant
To select the best possible student property investment opportunities, you need to make sure you do thorough research into your target tenant. So what do we know about the UK student market?
According to a study by the National Union of Students, it was found that out of every ten students in the UK, four of these deemed their accommodation as ‘substandard’. Many of the issues students encountered revolved around the property itself, with 42% of students reporting problems with damp and insulation, and 16% experiencing electrical issues. From 2010 to 2016, there was a 68% rise in levels of demand for more high-quality purpose-built student accommodation. During the same period, there had been a rise of just 9% for more traditional housing and university-provided accommodation.
Statistics like these highlight the fact that the UK’s students favour modern and high-quality accommodation over the more traditional shared student housing of the past. Students tend to be interested in accommodation that supports their studies and lifestyle. The majority of students will seek out accommodation that’s well-located and well-decorated and comes with good access to WiFi, with built-in appliances like white goods and other gadgets.
Research the location
As with any property investment, the location of your student buy to let investment plays a big part in the venture’s overall success. As already mentioned, rental yields, demand, and capital appreciation are the most important elements of a student property investment, and the potential behind these can vary depending on the location you invest in.
For instance, Liverpool student property investment and student property investment in Manchester are both considered great options due to the fact that these cities boast some of the highest average rental yields, student populations, and property price growth. On the other hand, the student property investment London offers is becoming less of an attractive venture due to declining property price growth and low yields in the area.
I’m a first time investor – should I invest in student accommodation?
Student property investment is a great option for first-time investors. Property prices are considerably lower than with residential investments, and rental yields are high. Through regular rental returns, you’ll be able to grow your income and build a well-rounded property portfolio more easily.
Should I buy an off-plan or refurbishment student property?
An off-plan property is a property that hasn’t been built yet, whereas a refurbishment property is a property which already exists and has been renovated. There are a number of benefits to buying off-plan student properties. These benefits include the fact that off-plan investments are usually offered at a lower rate, and boast excellent capital growth potential, with a good chance of increasing in value before the property is even complete.
What taxes are involved with UK student accommodation investment?
There are certain taxes for investors to consider when it comes to student property investment in the UK. Anyone purchasing a second home, such as an investment property, is required to pay stamp duty tax on properties worth £40,000 and over. Another tax that those investing in student buy to let will be required to pay is capital gains tax, which is a tax made on any profit you generate after selling your property.
Can I buy a UK student property if I’m an overseas investor?
If you’re an overseas investor, you should definitely consider buying a student investment property. Buying property in the UK has a lot of advantages for overseas investors. Not only do you get to benefit from the chance to make lucrative returns from a thriving market, but the investment process is a lot more straightforward for international investors than in some other countries.