Student Property Report 2009-2010
In a market where many investors have seen rental voids, capital values decrease and Ltv rates decrease, why are many of the UK’s most renowned investors focusing on Student Accommodation?
If you look at the simple economics, student accommodation really does sell itself.
In short, you can purchase a property that will rent at a much higher value to students than an equivalent unit would to a private individual. You also do not have the downfall of rental voids! In fact, many landlords are filling their units 6 months in advance!
Many investors want hands off investments with high returns and no rental voids.
If this is you, look no further.
Demand:
Where rental demand in the residential sector is prone to peaks and troughs, student number have continued to rise from 1.8 million in 1996-97 to approaching 2.4 million in 2009-10*.
Indeed early indications are that the economic conditions have led to even more people looking to higher education.
UCAS data revealed that UK university applicants rose 10% between 2008 and 2009 and overseas applicants rose 13.6% during the same period.
“Overall student numbers are likely to remain stable and in the medium-term there is unlikely to be a substantial uplift in student places as caps remain in place. However, the expectation is that the proportions of both overseas and postgraduate students will continue to grow, underpinning future demand for private professionally managed halls.” Knight Frank
Supply:
Private Student Development is still made up of the 4 main service providers, UNITE, UPP, Opal and Liberty Living. The majority of students have to rely on halls for their accommodation with a small percent benefitting from access to private operated rooms.
Many university run halls are found to be outdated and lacking in necessary facilities. This creates demand for private accommodation but with development finance so hard to come by, this accommodation is nowhere near keeping up with demand.
“Student Numbers are growing at 15 times the rate of new supply in London” Savills
Prospects:
Student accommodation rents have increased by 5% p.a for the last 6 years with growth increasing right into the 2009/10 academic years. Compare this to residential and commercial rents which have both fallen overall during this period and you start to understand what makes this market so appealing.
“Student Housing delivers income during uncertain economic times” Savills
As student accommodation is commercial by class this has also seen an increase in values, this sectors robustness is highly attractive to a growing number of investors who want high capital growth that can be depended on for the long term.
Even in the midst of a global downturn occupation levels for good quality purpose built private accommodation is close to 100% with rental levels for 2010 predicted to increase by at least 5%.
Yields and Values:
Although the rentals gained have not been hit by the credit crunch, one side that has been impacted has been the finance student developers have been able to find. Because of a lack of this many new build schemes have not got off the ground.
If we factor this and the fact that university applications have steadily increased we have a demand/supply scenario which is drastically in the favour of the buy to let investor with student property in their portfolio.
Compound this with the fact that many universities cannot afford to build the necessary accommodation themselves and we have a scenario where these same universities cannot grow to their potential because of this lack of accommodation.
Universities have always relied on private developers to make up the deficit that their own student halls cannot fill.
With many student developers not building because of the lending constrictions, small investors are starting to fill the void with new build 4/5 bedroom houses. These normally comply with the rigorous build accreditations and rent for a lot more than residential lettings.
Through this lack of supply yields have risen steadily and values have followed, we envision this to be the case for the foreseeable future. The student market is continually growing and with many universities operating on shoestrings it falls to the private student developers to build in their place.
How we can help:
You will have seen by previous posts, blogs and emails that Fresh Invest have faith in the student market as a valid buy to let option.
For this reason we are due in the very near future to bring you a selection of landmark student pods which can be bough individually as “completely hands off” investments.
These properties will come already tenanted with high yields and great commercial mortgage options.
Below is an example of a property we are close to agreeing an exclusive for.
Financial Example.
1 bed student pod – First Floor – From £90,000
- Deposit Needed – £31,500
- Rental achievable – £541 (£125 per week)
- Mortgage – £58,500
- Mortgage Payments – £138 pcm (RBS, 65% LTV @ 2.83% Tracker)
- Service Charge and Ground Rent: £70 pcm
- Positive cashflow of £333 pcm!
Register your interest for these opportunities here.
3 Reasons why you should start investing in property again.
Property Investment….over the last 18 months probably the furthest thing from your mind!
So why start investing now?
1. Mortgage rates are relatively low.
Ok so the ltv rate isn’t great but the actual rates are pretty good and with our economy suffering i believe there is little chance of the boe base rate increasing.
An average 65% ltv mortgage on a new build flat is around 5% with second hand property mortgages available from 75% at 5% rate.
In historical terms the rate is a lot lower than it has been for a long while.
As ever, if you are building a property investment portfolio you need the mortgage rates to remain fairly low to allow you to repay the mortgage loan, another up shot is that when buy to let mortgages recover the ltv rates will increase, allowing you to remortgage.
2. Property supply is at an all time low!
With most new build developers choosing to stop building last year we now face the fact that it will take these housebuilders a year to get new schemes out of the ground.
This will mean that for around a year from now new properties will be some what of a rarity. New build property accounted for a massive part of the property bought last year, without this supply and with increasing demand prices are sure to increase.
UK Property Investment has always relied to a large part on developers willing to discount their property for either bulk sales or quick completions but if they have no stock….
3. It’s cheaper to buy than rent.
Recent research has shown that for the first time in ages it is actually cheaper to buy than rent, well outside of London anyway!
Abbey found the average rent of £434pm compares to a mortgage payment of £382pm (with a 25% deposit). That’s a saving of £52pm. People in Wales and the north west would save on average £90pm. We can also overpay or save whilst interest rates are low.
So for those looking to start in property investment now looks like an ideal time.
My predictions for the next 12-18 months…
Wow, what interesting times we live in! Property Prices seem to be on an elaborate rollercoaster depending on the area that you live.
One day prices are rising, the next falling, i think the property investment market needs some stabilisation so investors can find their legs again!
Personally i think this may be right around the corner.
I believe that for once the government may have actually got the result that they wanted, even if they will achieve it in a way i doubt they could have expected!
What do i mean?
It’s quite simply a matter of demand and supply and it’s one which could impact us all so pay attention!
Around 12-15 months ago the vast amount of new build property developers stopped starting new developments and started land banking. No property developer would start a site that they thought would actually lose them money!
This was fine at the time, there were more than enough new build developments going to keep most property investors happy, in fact if we are honest there were probably too many!
It’s easy to say that the UK needs to build x amount of housing to keep up with demand, but if that housing is mostly luxury apartments in city centres, way out of the price range of joe bloggs then it does not really equate!
What we are now seeing is the end of many large property developers redundant stock, most sites are now finished and developers are just about to start building again.
This will dramatically impact on property investors and property investment companies, how? because for the next 12 months + we will see little to no new build developments being offered.
“What of all the off plan deals” i hear you say.
Well if you put your hand in the fire and it gets burnt, you don’t go back for a second go do you?
If developers start offering off plan opportunities that is exactly what they will be doing!
It is a lose lose situation for a developer.
- They offer the property off plan and the prices continue to rise – Result – they have lost out on potential profit.
- They offer property off plan and prices drop – Result- what seemed a smart bet turns into disaster as property investors decide not to complete as the promised 25% discount has been eradicated by price decreases!
Summary – Developers can’t win!
So we are faced with developer not offering discount on their property until they have completed the site and explored every other selling option!
This has to be at least 12 months from now for even the quickest builders!
So what would i do?
Buy now!! Were on the way to a mini price rise where property investment demand suddenly rockets past supply!
If you can get it right you can grab the last of the good discounts now and sell or remortgage in 12 months time when prices have risen.
You don’t need a crystal ball, just look to the past!
Everybody seems to be waiting with baited breath for sure signs that the property market is on the up.
I liken it to being a child just about to take that first jump on your bmx, you spend all day making the jump then all gather at the top of the hill ready to go. Then you all stop, look at each other, daring the other to go first.
This is how i see many of us in the property market.
Nowone wants to be the first, we all need to know that someone has taken that jump before us!
If we take a quick history trip back to the second half of 1992, the market was just beginning to emerge from the doldrums of the late 80′s.
If we use Halifax’s figures, the average price in 1990 was £69,000, by 1992 it was £61,000, however, as we entered the millenium it has climbed to £81,500, a 15% increase.
In London prices has skyrocketed from £76,000 to £142,000!
This explains the recent increase in viewings in the capital.
The other explanation is easily explained if you look at the typical house buyer at the moment.
They fall directly into the middle age, middle class category.
These individuals were either at university or not on good enough wages to take advantage of price increases in the early 90′s. However, since then many have worked hard and are now in a solid job, having regularly paid off their mortgage.
These are the types of people that see an opportunity, they are also the people that are in the best position to take advantage of it.
The downturn in the market has resulted in the North/South divide widening again, where most southerners seem to have a larger amount of equity, this has allowed them to ride out the downturn in relative safety; whislt also paying off massive chunks of their mortgage thanks to the low base rate.
Because of this they are now in the ideal position to pray on an underperforming market.
Lenders are heavily favouring investors with large deposits and good jobs which is exactly the demographic many of these investors fall into.
Whilst i still think the property market has another 10% drop in it, i’m buying, the reasons?
I would rather pick up a high yielding property off a desperate seller in a declining market than a property off a confident seller in a buoyant market.
If you are worried about the 10%, offer 10% below market value, your more likely to get it now and take advantage of low mortgage rates than after the market has turned!
“Flipping” property!
Have the days of the short term investor now gone?
Are their still quick profits to be had out of the property market?
I have always been a believer in investing in the property market for the long term but investigating whether a short term profit is available at the same time.
By this i mean, if you go into a purchase knowing that you do not need to sell in the short term, but investigate the option anyway, you are in the position of power.
It occurs to me that all investors with cash in the bank seeing maybe 3% tops from their savings must be looking at an alternative to their investment.
Surely the knowledge that property as an investment has historically always grown in value must lead them to consider this?
Answers on a postcard….
When is a bad time to buy property?
I can’t say how many times various friends and investors have said they are not willing to invest yet believeing prices still have further to fall.
Well, do they have a point?
There is of course and argument for both sides.
These are my thoughts.
Any investor needs to ask themselves why they are looking to invest in property, now more than ever.
Do you want a quick turnaround or are you in it for the long term?
If you can buy a 2 bed flat in Central London for £200k now, where they were £300k last year, surely purchasing this is a win win situation?
If you are looking to build a portfolio with a good yield, buying a property that produces an 8% yield must be good business whatever the market is doing?
No?
If I was after a property to add to a portfolio, bought it today at £200k producing an 8% yield and the price of the property fell another £50k before recovering, is it really the end of the world?
I remember when i started in this business, someone told me that there is never a bad time to buy property, they explained that if you are in it for the long term and only buy properties that fit into your strategy there is never a bad time to buy.
I agree with this, if you can get the property you want in the area you want at a price that is competitive then buy, it may not be there tomorrow.
