Investing in Student Accommodation
In recent years student accommodation has come to present a real opportunity for investors. As it is predominantly a segment that includes smaller properties with good returns, there are some characteristics to consider.
“The key factors making student accommodation attractive are the high demand and the stable income generation it gives, due to low operating costs,” says Lesiba Mooka, CEO of Cobalt Blue Properties.
“Institutions are not able to provide sufficient accommodation for all their students and this has opened doors for investors to enter the market.”
Mooka points out that the University of Johannesburg can only accommodate 6,500 students, Wits 5,000 and the University of Pretoria just short of 6,000 — but each of these institutions has an estimated 30,000 students or more on their main campuses.
He says the most important considerations when looking at potential opportunities in student accommodation are the proximity to the university, the condition of the building and, of course, the price.
“The area where the property is located will affect the travelling times to and from the campus and the accessibility of public transport, as well as things like security,” he says. “The property shouldn’t be so big that students have to pay too much, but it also shouldn’t be too small. Most students tend to avoid university residences because they consider them to be small and cramped.”
Although some investors have realised an opportunity through buying old office buildings and turning them into apartment blocks for students, Mooka suggests that anyone wanting to enter this market should rather think of starting smaller.
“As a start, I’d advise investors to look at small apartments or old houses that they can turn into student communes,” he says. “The monthly operating expenses on these types of properties will be lower, as will the start-up capital. Only when they’ve acquired enough experience in operating these properties efficiently and are aware of all the difficulties that come with owning one, should they look into something bigger, such as an old office building to convert.”
He says that for one- or two-bedroom apartments, investors should be able to find properties in the price range of between R350,000 and R450,000. These could realise rentals of between R4,000 and R8,000 a month, depending on the number of beds per room. The alternative is to pay between R700,000 and R900,000 for a standalone house that can be made student-friendly. This could see rentals of between R15,000 and R20,000 a month, depending on the number of rooms and tenants.
Words: Patrick Cairns