Student accommodation investments to capitalise on stable US market

Chandler OaksAs long as higher learning institutions and universities exist, there will be a need for student accommodation, making it a very feasible investment opportunity for those with the available capital, says James Bowling, CEO of Monarch & Co, a company that specialises in residency and citizenship by investment programmes around the world. With a consistent annual influx of student tenants flocking to areas surrounding tertiary institutions and on-campus accommodation filling up almost immediately, the need for privately owned off-campus student housing has grown massively over the past few years.

While local student accommodation investment opportunities do still exist in South Africa, many investors have already bought the majority of the accommodation within proximity to universities. “However,” says Bowling, “countries such as the United States and the United Kingdom have made it possible for foreign investors to take advantage of their recovering housing markets through the purchase of student accommodation.”

He notes that both the US and the UK are shaking off the lows experienced during 2007 and 2008 from the financial crisis and are moving in an economically positive direction. During 2014 the US had an economic growth rate of around 2.8%, which is the highest rate among the globe’s advanced economies and economists predict an estimated 3% growth for this year. According to Bowling, the resurgence of the US real estate market is well and truly underway with the average US property value showing an appreciation of around 12.2% in February last year. “In addition to the fast-paced property sales market in the US, the rental sector is also booming, which is providing excellent opportunity for buy-to-let portfolio investment.  Record high rentals are making international investors even more bullish about investing in US real estate,” he says.

According to statistics, there are around 4140 colleges or universities within the US with around 17.3 million students who attended a higher learning institution during 2013. With many of the students choosing to live away from home, the student accommodation sector is rapidly growing. Bowling says that student accommodation has become a global mainstream asset class in its own right with an estimated worth of US$ 200 billion worldwide. “Many locations within proximity to universities and colleges have become investment hotspots, with supply struggling to keep up with the increasing demand.”

One such area is Gaffney, which is 45 minutes away from the financial hub of Charlotte in North Carolina. Gaffney is home to Limestone College, a co-educational arts college established in 1845. The college’s enrolment is over 3 500 students making it the largest private, regionally accredited institution in South Carolina. With growing enrolment and limited accommodation on campus, the surrounding real estate market is booming as the demand for student housing grows. Chandler Oaks, a collection of fully refurbished one- and two-bedroom apartments, which is a mere stone’s throw away from Limestone College, provides an ideal investment opportunity for those wanting to start or grow their international buy-to-let investment portfolio.

“Demand for accommodation is so great that Chandler Oaks already has a waiting list of students who are ready to move in as soon as occupancy is available,” says Bowling. Prices for a one-bedroom apartment start at just under $49 000, with prices going up to a maximum of $77 145 for a two-bedroom apartment. The properties are fully managed and a rental of around $550 per month can be expected for a one-bedroom apartment while two bedroom apartments can rent out for approximately $730 per month.

“While there is already a five year tenant agreement in place with the college president for 63 of the 100 units, the remaining apartments can be let out directly to students and young professionals. This opens the spectrum of possible tenants, as it is not restricted to purely student accommodation. Investing in property with restricted usage that only appeals to one demographic can eliminate appreciation potential at a later stage,” says Bowling, who adds that each unit will have its own deed and title.

He notes that despite the present annual growth of around 8% for a similar property, the developer is offering a guaranteed buyback in the year 2020 of 112%. The guarantee will pay 2% per annum in terms of capital appreciation on the property, which will bring the guaranteed returns of 10% net per annum including rental yield.

“Purchasing the right kind of property in an investment hotspot such as Chandler Oaks and having an investment strategy in place can make purchasing a student housing property a viable income-generating investment over the long term,” Bowling concludes.