Overseas students bolster returns for UK student property investors

International students are boosting yields for investors in halls of residence

Domestic university applications in the UK have dipped this year but international students are plugging the gap and boosting yields for investors in student halls of residence.

Investors in the sector are benefiting from gross yields of 8 to 10% (approximately 6.5% net), almost twice the average yields in the wider buy to let market, according to a report from buy to let specialist Assetz.

The number of university applications from domestic students fell by 8.7% this year according to UCAS, following the increase in high tuition fees to up to £9,000 and worsening job prospects for new graduates.

However, university courses are still heavily oversubscribed and applications from international students in particular to study at UK universities are on the rise, with the British Council forecasting an additional 30,000 international students enrolling on UK university courses by 2020, a 10% rise this decade.

The National Union of Students has reported a severe national shortage of dedicated student accommodation, creating strong competition for high quality purpose built student residences and resulting in extremely low void periods for investors, who typically know seven months in advance that their property is tenanted for the next academic year.

International students are less price conscious and more likely to remain in dedicated student halls throughout the duration of their course than their UK counterparts. This presents an opportunity for UK investors seeking a high yielding, low risk, hands off investment, with private halls being managed by on site management teams who handle all bills and ground rent, the report suggests.

‘The student property sector has proved to be one of the most resilient investment sectors during the downturn, with rental incomes and property values remaining stable or increasing,’ said Stuart Law, chief executive of Assetz.

‘International students are used to paying for their education and despite steep rises in tuition fees, the UK remains highly competitive compared to other popular destinations such as the United States. The dip in demand from domestic students has been far from catastrophic and the rise in international students enrolling at UK establishments will not only fill the gap but increase competition for places,’ he added.

According to James Pullan, Knight Frank’s head of Student Property, the rise in global student mobility is a long term trend that is set to continue.

‘This structural shift in the make up of student populations has significant consequences for cities that play host to the best universities, and throws up key opportunities for developers and operators,’ he said.

He added that overall the rise of the middle classes in emerging economies, especially Asia, the growing acceptance of international higher education qualifications across the world and a new internet generation of globally connected and well informed student consumers is creating a growing pool of students travelling across the world to study at degree level and beyond and the UK is one of the leading countries in respect of attracting international students.

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