Student housing has become a very attractive vocation for the private sector given the severe shortage of it in South Africa.
According to the Department of Higher Education’s Ministerial Review of South Africa’s University accommodation, less than 10% of first-year university students can be accommodated. In addition, much of the available on-campus accommodation is dilapidated, unhygienic and unsafe.
Ken Reynolds, Regional Executive of Nedbank Corporate Property Finance in Gauteng says that according the Department of Higher Education in 2009, it was confirmed that the shortage is extreme and that the lack of supply of student housing is one of the primary causes for poor performance and the high dropout rates at some universities.
“According to statistics from the Department, out of a student population of 530 000, there is currently only enough student accommodation for 100 000 students – this barely meets 18% of the demand. As the demand for student accommodation far outweighs supply, there are excellent investment opportunities available in this market.
“As a result, we may see the establishment of a new real estate investment trust dedicated to providing student accommodation in the future. And, although the buy-to-let market is currently depressed, student accommodation is one section of this market that is proving to be an excellent buy-to-let option for private investors, usually for a relatively small capital outlay,” he says.
Standard Bank, ABSA, FNB and Nedbank are some of the private financial institutions pursuing student housing as an investment. They have recently partnered with a number of developers that are focusing specifically on addressing this critical student accommodation shortage.
Nedbank Corporate Property Finance announced in June last year that it had provided finance to CampusKey to provide close to 500 additional beds at the University of the Free State and the University of Pretoria.
Nedbank has also financed an additional 1 590 beds for the University of Johannesburg and University of Pretoria which were constructed by Respublica in time for occupation by students at the start of this academic year.
Respublica is fast becoming a major student bed developer. Respublica has a capacity of 2,700 beds now which it hopes to increase to 20,000 in the next four years.
Craig McMurray, CEO at Respublica says the demand is tremendous for student housing.
“The key is to develop housing which is of a good standard. Students cannot just live anywhere. If the housing is inadequate as it is cramped with other people and things break like stoves and so on, the accommodation becomes a waste,” he says.
He says bad accommodation has a high correlation with people failing at university, especially in their first year of study.
Redefine Properties, the second-biggest listed SA-based property company gave a vote of confidence to investing in student housing last year. The company bought a 51% stake in Respublica for R204m.
Now Nedbank Corporate Property Finance is providing PCI Rentals (Pty) Ltd through its subsidiary, JJP Varsity Lodges, with R221m to provide 2574 additional beds to tertiary institutions around the country, with at least another 2000 to be developed in the near future.
Accommodation provided by this funding is spread across the country.
It includes Meadowlands in Newcastle, offering 289 two bedroom units that are across the street from the newly developed Curro Meridian School and in close proximity to Majuba College.
It also includes 1115 beds in Riviera and Phillip Nel Park in Pretoria, which provide much needed accommodation to the University of Pretoria, Tshwane Institute of Technology and SANDF students.
As many as 530 beds in Brixton and Hursthill in Johannesburg will also be accommodated. These are for the University of Johannesburg and Helen Joseph Academic Hospital students.
As many as 450 beds in Midrand will be financed, providing accommodation to the students of the Midrand Graduate Institute and finally 190 Beds in Potchefstroom for students of The North West University will be financed.
Private individuals are also encouraged to rent out flats and houses to students.
Seeff Properties, the estate agent says however that student housing is maintenance heavy and that the property owners must be careful.
Seeff’s agents across the board agree that investors should keep in mind that although student accommodation is clearly in demand, these properties also require extensive maintenance.
The tenant turn-over can be very high and factors such as good security, wi-fi facilities, proximity to place of study, parking and access to public transport, gyms, bars and night clubs play a crucial role in the desirability of the property and its rental returns.