 In the UK property market over the last 12 month Student accommodation has been the best-performing asset with average double-digit returns these have been driven by strong rental growth.
Over the last 10 years the student housing sector has grown to a market worth in the region of £103bn. This growth has been driven by a rise in the number of students enrolling on university courses, up from 100m in 2000 to over 150m last year. According to the property index student housing funds have returned close to 12% since the start of the year this compares with an average return of only 1.3% across the rest of the property market and an average 6% for other investments. Over the last year a number of large investment funds have bought into the sector as they believe that the sector is not greatly affected by the present economic downturn and lenders are also turning to student accommodation as one of a handful of property types which they view as low risk: vacancy rates run at about 5%, less than one-third of the figure elsewhere in the property sector. To invest or find out more about the student investment sector please follow the link - STUDENT INVESTMENT  A lot of investors simply rely on the price given to them by the agent or developer. But developers can overcharge, they over-design buildings in a bid to win awards and they are forced to overcharge for the buildings simply to break even.
Some savvier investors may base their investments on a search on one of the many internet property portals to find the average prices for similar properties in the area. The more experienced might also use sites like Zoopla to see how properties have been amended, re-listed, re-valued since their original posting. However, these sites only give us the values that the vendors and the estate agents think that the property is worth. This isn’t reliable as the vendor clearly wants to obtain the maximum price, a strategy supported by the agent who normally works on a commission basis. There is only one way for investors to ascertain a property’s value which is truly safe and that is to find a properties residual value. The residual value is based on the amount of net rental income it can generate – anything above 6% looks like a good investment. For example, if a property brings in £6,000 rent per year after all costs have been taken in to account, that £6,000, based on a 6% net yield would give the property a value of £100,000. That £100,000 would be the Residual Value of the property and it should be the focus for every investor going in to a deal. But at the minute investors ignore the residual and rely purely on the capital growth of a property which is hopelessly optimistic considering the market place at the moment. Despite the residual value of a property being £100,000. The investor may pay £125,000 believing that the value of the property will increase and they can sell it for £150,000. But then if property prices start to fall slightly, he’s suddenly in negative equity and then the only price someone would be willing to pay for the property is the Residual Value and the investor will have lost £25,000. The key to real successful and safe investment is how you derive the 6% net yield which you have used to establish the property’s residual value. By working out the 6% net yield using below market value rent it means that the investor will not have to contend with tenants struggling to pay rent. As rent continues to rise, there will always be a demand for properties charging below market value rent. First time buyers will be queuing round the block to save a £100 per month, yet the investor is still left with a 6% net yield because they have bought the property at residual value. It also means that there will always be savvy investors looking to purchase a property at the residual value because they are not only purchasing a strong income stream, but they are purchasing a property at a price that will not be affected by market fluctuations or crashes. If the property market was to fall again then the investors who have invested in residual value will be protected from the fall in house prices and when houses start to get repossessed and more people are forced in to the rental market, then their yields will go up even though they are still charging below market rent. In the end, everybody will be relying on residual property valuations. It’s inevitably in the future but there’s no reason why investors can’t take advantage of them now. Invest in Student accommodation with unit prices on average 30% below comparable units and a net rental guarantee of 8% for 2 years - LINK
Student accommodation will continue to offer attractive investment returns in spite of upcoming changes to tuition fees, this is according to all the major market analysts.
Private investors have been attracted to student property as an asset class due to the relatively high yields on offer, driven by the imbalance between the supply of accommodation and the high demand for university places. With an offer on at the moment of buy five get one free there has never been a better time to buy into this market especially when you consider that the current value for student accommodation is £45,000 per unit whilst the deal offered nets the properties down to £25000 per unit. Link to further information – Student pods. Take note of what Phil Clark, Head of property investment at Kames Capital, has to say.
‘My view is that 2012 will be every bit as challenging as 2011. However, there are still many good opportunities for property investors to make well-informed decisions. In particular, I believe investors should consider a greater exposure to alternative sectors such as student accommodation or healthcare property. One of the key attractions of these alternative sectors is they generally have a high income yield, an ability to track inflation and have low vacancy rates.’ LINK to Student Accomodation LINK to Healthcare property LINK to Alternative Investments |
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