Picking up the object, every investor hopes, first, to get a good income, and second, to minimize the risks associated with losing the tenants. Commercial premises are more suitable for these criteria than residential housing. However, due to high initial costs, such projects are not affordable to everybody. Investors of an average hand, usually have to buy a residential apartment or home and agree therefore on a low income.
Student housing as an investment product is a great option, located at the junction of three criteria – high profit, minimum risk and affordable price threshold for market entry. According to PwC, around 70% of investors believe that investment in student apartments have good or very good prospects in 2016. The last 3 years this sector receives at least $6 billion annually.
High demand = low risk
The number of students who study abroad from 2000 to 2012 increased more than in 2 times (from 2 million to 4.5 million). By 2025, the number of foreign students will reach 8 million people. The growing demand for student apartments is also due to the gradual increase in the share of wealthy people in developing countries.
Students need housing even in a crisis, while tenants of commercial premises strongly depend on the economic situation in the country. As a rule, the liquidity of student housing is lower than of conventional apartments, but higher than of commercial real estate.
On which factors depend the demand?
1. The Prestige Of The University. The demand decrease for this high school automatically leads to the fact that student housing in the surrounding area becomes cheaper and harder to sell. The largest number of well-known and popular abroad universities are located in USA, UK and Germany.
2. The price of learning. The lower the price of studying is, the greater the influx of students from other countries and regions is.
3. The visa rules.
4. The unemployment level among young people.
Cost and profitability
Student accommodation in Europe can be purchased for €100 000, the price of the whole hostel starts from €15 million.
The average yield on student apartments is 4-6%, assuming a properly sized space. These apartments should be situated in a specialized complex near a major University. If your region has a lot of housing for rent at a low price, it will reduce the yield.
Best option is to buy new objects. In the case of acquisition of real estate in the secondary market the cost of repairs increase.
Passive management
As a rule, all work issues, from repairing equipment to search for tenants is managed by a management company. Thus, we are talking about passive management of the object. Management company receive for their services about 10% of the rental profits.
Popular areas for investment
Most high and stable demand for housing for students is in Germany, France and the UK. In these countries the share of students from abroad account from 10% to 20%. In 2015, investments in student housing in Germany has doubled and reached €525 million. In the UK, the figure at the end of 2015 was at the level of €5.8 billion and showed a 3 times increase.
In countries such as Austria or Switzerland, student centers at the stage of construction are purchased by big funds and investment corporations.
And last: it is necessary to distinguish a student dormitory (which can only accommodate students) from the usual apartments located close to the Universities. Student apartments are multi-bedroom communal flats with shared bathroom and kitchen.
Text – Alena Eliseeva, ee24
Photocredit Depositphotos.com