Back to school for wise investors
Dylan Burke - IPS
8 March 2008
When you ask an investor for reasons of yield, who their ideal tenants for their investment would be, 90% of them would answer “Someone one who pays their rent on time”, others would answer “An elderly couple, this means less hassles and prompt payment of rent”, BUT, the clever 10% percentile would answer “students”.
One of the biggest factors that many investors overlook is that there is a growing need for student accommodation, with the amount of students applying to study at a university or college growing at a rate of 24% a year.
The SA Minister of education, Naledi Pandor made available an amount of R48 million to increase the Engineering facilities at varsities and colleges to draw in the students due to the lack of engineers in our broad and wide country.
This year alone 12 000 bursaries, equating to R64 million rands was granted, a substantial increase in last years figures. The figure for total students enrolling is proposed to be 820 000 by the year 2010, an increase of 82 000 from 2005.
The increase in commitment to the education process has a drastic effect on the property rental market in areas that surround a university of college. With the increased numbers of students registering, the demand for rentals in the area will increase ten fold, with the tenant staying on average 3 to 5 years in the area.
Some points to consider when deciding to purchase an investment property in a student area:
More students attending university due to Government backing and initiation schemes meaning increased demand for property
Supply of in-house student accommodation is not keeping up with the high demand, thus students look off campus to rent accommodation.
Low risk investment due to near-guaranteed rental income and access to accurate statistics on student market – market is more stable
Increase in overseas students creates a growing demand for accommodation
Student property is a positive, long-term income generator. There is near-guaranteed rental income in all of the best student towns and a constant and growing supply of tenants. Student property is a relatively hassle-free investment; with the hiring of an external organization, making the investment a hands off option.
The student population is a very stable yet growing source of tenant demand, as there will always be students requiring accommodation. Demand is also less volatile than other property markets, due to the set ‘academic year’, which predetermines exactly when investors will be receiving an income from their investment.
Student numbers are set to continue to rise in coming years. The type of student accommodation offered within South Africa is set to follow the foreseen growth pattern, which is in keeping with the demand pattern we are seeing from students currently. The majority of full time students attending universities in South Africa are choosing to live in private rented houses and apartments.
So much like a student’s mathematics/statistics text book, an investment is all about making the figures work. If an investor can change his outlook towards the student tenant, he can realise that a property + a student tenant = good investment.
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