The UK is one of the centres of higher education globally as four UK universities were ranked among the world’s top 10 in 2019 in terms of concentration of top universities. The reputation of the UK as one of the leading places for higher education has boosted the demand for PBSA or purpose-built student accommodation, generating a huge potential for student accommodation investment UK. PBSA has become a fast-growing and vibrant part of the economy in recent years and it is widely considered the UK’s best performing asset class. Student accommodation investment UK offers higher than average rental yields, a lower entry level and reliable passive income to landlords. The popularity of the student accommodation market makes it an ideal candidate for portfolio diversification.
The sector even overtook the US as the biggest student property market in 2015 and it is regarded as a WCA or World Class Asset. In 2016, £3.1 billion was invested into PBSA, making it the 5th year in a row that the sector received a total investment of over £3 billion. The popularity of PBSA has drawn the attention of overseas investors in a big way as 64 per cent of investments into the sector in 2016 was made by non-UK investors. One reason for the popularity of this sector among overseas investors is that the PBSAs are fully-managed, specialist property investment which relieves them from the stress of performing landlord’s duties.
Landlords do not have to respond to calls at odd hours for urgent repairs, face the hassles of collecting rents from all the tenants or respond to any other tasks that require the involvement of landlords. All the responsibilities of landlord are taken care of by specialists who carry out the management, maintenance and tenanting of the project. Once investors make a purchase, there are no further fees or deductions involved and they only need to collect their regular rental payments and profit on capital appreciation upon exit.
The ever-increasing popularity of the PBSAs has cut into the demand for traditional buy-to-lets and HMOs as they are no longer as profitable as they once were. While HMO properties involve a lot of efforts to set up and costly to manage, there is a lot of hard work involved in traditional buy-to-lets for students and working tenants and do not yield much profit. The average gross yields for traditional buy-to-lets is already low and varies between 4 and 6 per cent, which is being further affected due to new government regulations.
The removal of previous tax incentives and tougher HMO licensing laws, along with the 3 per cent stamp duty land tax been levied on buy-to-let landlords have undermined the attractiveness and profitability of this investment. Apart from these factors, the overall responsibilities of BTL landlords have led them to reconsider their strategy. For the traditional buy-to-let landlords, managing the investment has become a full-time job, but with diminishing returns. These complexities of the investment have made it a less lucrative investment.
The purpose-built student accommodation has removed all the hassles of investing in a student property. It has eliminated the inconvenience of investing, converting and managing a traditional buy-to-let property. These properties are developed exclusively for the student community and provide all the facilities students need. It means they do not need to pay for a standard room which may not have amenities specific to students. Moreover, these developments are often situated in close proximity with universities, which further add to the purpose and value of these investments. PBSAs include a range of living spaces to meet the needs of students which include affordable properties as well as the luxury ones. These luxury developments are highly popular among overseas students who are prepared to pay higher rental amounts in return for better accommodation.
Advantages of student accommodation investment UK
The student accommodation sector has been the UK’s highest yielding property asset since 2011. The number of students enrolling into UK universities is growing by the year which raises the demand for more purpose-built accommodation across the country. This includes students from within the UK as well as overseas. In terms of international students, the numbers have doubled over the last 10 years and it has even been predicted by property group Knight Frank that the sector will see a further 20% growth in the next 5 years. The student sector is valued at approximately £117 billion globally, which is predicted to reach as high as £143 billion within the next 10 years. Investing in student accommodation is a better option for an assured, stable property investment – one that is not affected by fluctuations in the residential property market.
Rise in student numbers
In 2016 there were record student numbers of around 550,000, which included a vast majority who require housing. The number of overseas students increased markedly in 2016 and UCAS figures from 2017 were also similar. There were record number of applications to UK universities from EU students during these years.
The demand for student housing has increased due to the rise in the number of students across the UK. In many areas, especially in the north, it is predicted that the under-supply of student accommodation will not be met for some time. The primary reason for this under-supply is that universities are unable to keep up with demand for housing, which means that most students will need to look at other places to stay. High specification apartments are becoming more popular with students, particularly overseas students, who are willing to pay more rent for a luxury PBSA rather than a traditional buy-to-let or HMO room.
The UK housing market has a tendency to be uncertain and volatile. As the supply of residential property falls short of demand and the student numbers rise, purpose-built student accommodation provides a solution to a potential housing crisis in university cities. This provides a good option for investors seeking to diversify their buy-to-let portfolios and take advantage of the under-supply.
Reputed education system
The UK is known around the world for its higher education. According to Savills, the UK has the world’s second-best university system according to 2016 HESS (Higher Education System Strength) rankings. According to Times Higher Education, the UK has 51 of the top universities and top three educational institutions in Europe.