Student accommodation a golden opportunity for investors

Student accommodation a golden opportunity for investors

Unilofts student apartments in Bloemfontein.

In recent years, there has been a significant increase in purpose-built student accommodation in South Africa, yet supply still outstrips demand, especially compared to developed countries.

This is good news for investors wanting to get into what is deemed to be a highly profitable property sector, according to Dustan Folkus, sales project manager at Engel & Völkers Developer Driven Projects.

“Every year as September nears, thousands of students start seeking accommodation near their university. There are a number of factors that determine what is considered good student accommodation, with location and cost the biggest factors. The closer to campus, the better and better still if the apartment is furnished. Wifi is also an attractive feature along with good security.

“For investors the purchase of student accommodation offers an excellent return on investment. Annual occupancy is usually at over 97% and both rental value and retail value increase with the passing of each year. In other words, the profit margin increases annually. For investors wanting to generate passive income and for parents looking at the option to buy an apartment for their child, as opposed to them renting for at least three years, well located, well-maintained student property is a solid investment,” says Folkus.

Engel & Völkers Developer Driven Projects has launched the Unilofts development in Bloemfontein, designed with university students in mind. The Unilofts are across the road from the University of the Free State, within easy walking distance of all campus facilities. Each of the 190 units is furnished and equipped with all the necessary appliances to make student life as easy as possible. Security features include controlled fingerprint access, 24-hour security with emergency response, CCTV and roaming guards. Each bedroom has a study area with a desk and a chair, the development has a communal braai area, vending machines and a copy shop. There is also a housekeeping service.

“Students are surprisingly meticulous when it comes to their accommodation. The unit needs to be close to campus, close to food outlets and entertainment spots, clean, well furnished with a decent-sized kitchen. There is also a demand for pet-friendly accommodation,” says Folkus.

He says the SA property market is far from mature when it comes to the supply of good purpose-built student accommodation.

“Coupled to the Government’s National Development Plan of increasing tertiary student enrolments to 1 600 000 by 2030, there will be a significant increase in the demand for student accommodation during the next decade. One of the key benefits of investing in this type of property is the consistently high occupancy rate.

“For investors, consistent rental income is a priority. With SA’s continuing rapid urbanisation, expanding middle class as well as the fact that the country offers some of the most sought-after universities on the continent attracting many foreign students, steady rental income from student tenants is almost a guarantee.

“SA is an emerging economy in addition to the brisk increase in tertiary education students, so the prospect for investors is lucrative. In fact, student accommodation in a high demand, low supply environment is a golden egg,” says Folkus.

According to Helandi Moolman of Engel & Völkers Potchefstroom, there has been a huge boom in student accommodation in the area since 2012.

“A lot more student accommodation is being built and the focus now is on location and price. As in other university cities and towns, students look for furnished units that are as cheap and as close to campus as possible,” she says.

One of the most important factors in ensuring long term good returns is vetting tenants properly and keeping occupancy levels high. The rental division at Engel & Völkers specialises in the letting of student accommodation and Folkus and Moolman say each prospective tenant is thoroughly checked.

“The last thing a landlord wants is a bad tenant, so we prequalify and place tenants on their behalf. We also lease the units year on year so there is no wastage,” says Moolman.

Off-campus student accommodation is a growing sector in South Africa and proving to be a profitable choice for investors. However, it is important to have an understanding of what type of accommodation students prefer.