SA investors cash in on student homes

17 Jan 2012

A shortage of student accommodation at universities and tertiary institutions has seen old office blocks being turned into upmarket student homes.

Johannesburg has seven properties located right across the road from the University of Witwatersrand and will take 934 students.

The shortage of student accommodation and funds to build new residences has led some universities in Johannesburg, Port Elizabeth and Durban to outsource their accommodation to private developers and building managers, says Richard Rubin, chief executive officer of Aengus Property Holdings (APH).

He says there is an ever increasing investor appetite for this type of housing and the private sector is in an ideal position to step into the breach.

APH is known for its inner-city regeneration projects, urban renewal and a new wave of fashionable inner-city living.

The developer is one of the leaders of affordable yet upmarket accommodation within the city centres across the country converting old office blocks into upmarket accommodation for university students. 

Rubin says according to the Department of Higher Education statistics, out of a student population of 530 000, there is currently only enough student accommodation for 100 000 students, meeting just 18 percent of the demand. 

The department says the lack of supply of student housing is the primary cause for poor performance and high dropout rates at some universities, with students forced to live in conditions not conducive to studying, he says.  

“Accommodation costs are also pushing university out of the reach of many disadvantaged students as rent eats up a major proportion of their monthly budgets.”

After piloting their successful student accommodation model in Johannesburg with 10 buildings, APH has purchased and converted 11 additional buildings in Johannesburg, Durban and Port Elizabeth into high quality student apartments.

He says a number of transactions spanning Johannesburg, KwaZulu-Natal and the Eastern Cape have been concluded adding that student accommodation is breathing new life into South African city centres.

Rubin explains that from the 11 properties, three are in Greyville Durban and will accommodate 183 students.

Central Port Elizabeth has six properties and will accommodate 482 students and Johannesburg has seven properties located right across the road from the University of Witwatersrand and will take 934 students.

Rentals in these types of properties range from R1 950 to R2 500 per person depending on the offering.

In Braamfontein Johannesburg, Aengus is already offering 1 000 new beds for 2012, he says.

Rubin says this is a growth market based on Higher Education Minister Blade Nzimande’s plans for growth to tertiary catered students.

He says if there were investments for sale (none of the students units in the Aengus Investment Properties buildings are currently for sale), investors need to make sure they are well run and located close to tertiary institutions.

Jaco Rademeyer of Jaco Rademeyer Estates says their main student accommodation is in the Summerstrand area in Port Elizabeth close to the Nelson Mandela Metropolitan University.

The developer is one of the leaders of affordable yet upmarket accommodation within the city centres across the country converting old office blocks into upmarket accommodation for university students.

Rademeyer says savvy investors buy property in this area close to the university and rent out per room with rooms costing up to R2 000 per month.

An investor in this case then earns income of R6 000 on a three bedroom property whereas a normal rate would have been about R4 500 per month.

He says people create extra rooms from garage spaces to earn more income.

Furthermore, he says January and February are generally busy months when it comes to student accommodation with many students opting to share a house, townhouse or flats and mostly looking for furnished accommodation.

The average price range that students are looking to pay this year is between R1 800 to R2 500 per student per room.

With the majority of students using public transport, the popular locations are Humewood and Summerstrand.

He says Humewood has mostly flats and students share these while Summerstrand has mostly townhouses and a variety of garden cottages.

“Student accommodation is very popular and there are plans of doing a whole student village very close to the university at the moment.”

Durban North is currently experiencing a fairly good demand for student accommodation because of Varsity College and Sharks Academy in the area. 

According to Grant Gavin, broker/owner of RE/MAX Panache, student accommodation on offer varies from a converted house often with out-houses converted on the property to granny flats on existing properties to luxury homes booked up a few years in advance.

Closer to Durban, around the Durban University of Technology, there are large blocks of flats such as Bryanston Heights where two and three bedroom flats are being used as student digs. 

Quite often the lounge is converted into an extra bedroom and the cost per bed is kept down, he says.

Asked about rentals, he says as an example, in Bryanston Heights, students can double up in a room from R900 per month and for own room upwards the cost is R1 200 per month. 

Rentals charged on modern, well finished apartments in prime locations range from R3 300 for a one bedroom flat, according to Engel & V?lkers Potchefstroom

In Durban North, the bottom end accommodation costs around R1 500 per bed per month, granny flats between R3 500 to R4 000 and luxury accommodation often inclusive of meals (although limited) to R3 000 per bed.

For a residential property owner looking at additional income streams from their property, this does provide a good option.”

We are seeing more investors buying a property with the specific intention of converting the house and outbuildings for student accommodation and the property then becomes a cash positive investment – something you very rarely attain on a normal residential property, says Gavin.

He says investors of this type of housing should have somebody living on-site to manage/supervise what goes on at the accommodation. 

Students enjoy the good life and it is therefore important that the landlord takes responsibility to ensure that there are strict rules in place for noise levels and unruly behaviour, particularly given that these properties are located in residential areas. 

It’s probably also advisable to contact somebody at the council to ensure that the number of students living at the property is approved correctly, he says.

In Bloemfontein, the University of the Free State (UFS) and Central University of Technology (CUT) campuses does not have enough student accommodation.

CUT students live mainly in Willows which have over the years become predominantly a student area and many families have moved out, according to Mike Spencer, owner at Platinum Global.

He says UFS students tend to live in Brandwag, Universitas and Westdene and tend to be economically better off.

Bachelor flat accommodation has been snapped up and normal one or two bedroom flats are virtually unobtainable.

A new building was constructed outside the UFS campus and will eventually have about 370 fully furnished two person apartments at Unilofts, he says.  

Spencer says the Free State Province believes that there is a shortage of about 2 000 student flats. 

This year has seen a well publicised increase in the number of students and this is on top of the 1 000 extra students at each university last year.

“Rentals continue to increase at about 10 percent as they have done for some time,” he says.

At Willow Glen, bachelor pads are now priced at R2 150 from the beginning of the year and Unilofts R5 500 per month.

Rentals charged on modern, well finished apartments in prime locations range from R3 300 for a one bedroom flat and student units are 100 percent occupied and investors enjoy capital growth as new buyers and tenants come to the city annually, says Venter.

Investors in this housing sector cannot go wrong as there is demand for student accommodation.

He explains that as for the disadvantages, CUT students that mainly come from Lesotho require affordable housing and cannot afford unrealistic rentals.

“Investors have to make sure that the returns make it worth their while and need to factor in the high levies, high maintenance and vacancy factors in their pricing.”

He says Bloemfontein has no forward town planning for building student accommodation meaning there is no zoned ground.

The CUT has a major problem because it is situated in the built up city centre with limited opportunities for acquiring ground to build new hostels/blocks of flats.

He says although UFS has a similar problem, many of the students come from better off families and have their own transport, which gives more of a choice unlike CUT students.

Engel & Volkers reports an influx of investors into student housing In Potchefstroom, says Carl Venter managing director of Engel & Volkers Potchefstroom. 

Venter says they are currently marketing a few well designed student housing developments in prime locations and investors from across South Africa are keen to invest in a good quality product with great returns and steady capital growth.

Developments in the area include Carmen, Ivy League, Annes Garden and Botanika.

Botanika and Anne’s Garden Two will be ready for occupation in March, Carmen at the end of 2012 and Ivy League will be completed at the end of 2013.

The agency’s property sales for 2011 revealed that 25 percent comprises student accommodation, 20 percent commercial and 55 percent residential.

“Buyers are parents buying for their children studying at the North West University and investors.”

Rentals charged on modern, well finished apartments in prime locations range from R3 300 for a one bedroom flat.

These student units are 100 percent occupied and investors enjoy capital growth as new buyers and tenants come to the city annually.

He says demand for student housing this year is peaking at a 5 year high.

In the Western Cape, Pam Golding Properties (PGP) rentals manager Dexter Leite says there are two areas that are in demand for the University of Cape Town (UCT) students and City Bowl with other student accommodation coming from Cape Technikon, AAA Advertising School and Boston City School. 

They look for two bedroom apartments to share with both parents invariably signing the lease as this is generally a cheaper (and considered safer) option than a one bedroom unit for one person.

Security, safety and secure parking are paramount concerns for students and their parents with many choosing newer developments, with mixed residential and retail components which offer an appealing lifestyle.

“Demand starts in October each year, peaking in November and December with enquiries continuing through January.”

Asked about property returns, he says gross returns on average are around 5 percent, whether for student accommodation or other tenants, in similar rental categories.

Inside one of the student units provided by Aengus in Johannesburg.

He says almost all the units they let to students were not purchased specifically as student investment accommodation, but were bought as investment properties.

In the Southern Suburbs of Cape Town, rentals range from R4 500 to R5 500 per month for a one bedroom unit with one parking bay to between R8 500 to R10 000 per month for two bedrooms with two secure parking bays.

Leite says there is demand across all rental price categories in the Southern Suburbs and City Bowl areas depending on affordability and the student / parents’ specific requirements. 

Overall, demand for student accommodation in these areas outweighs supply, he says.

He says the The Quadrant (Claremont), Mont Clare (Claremont), The Claremont (Claremont), Intaba (Claremont) Albion Place (Newlands) are very popular with students.

In City Bowl, bachelor apartments are priced from R4 000 to R5 000 per month and one bedroom units from R5 000 to R6 000 while two bedroom units cost between R6 500 to R8 500 per month.

Popular developments in the area include Mutual heights in Darling Street, St Georges (Strand Street), Wembley Square and Perspectives (Roland Street).

PGP Stellenbosch area manager, Louise Varga says buyers of student apartments are parents and investors.

Parents normally buy an apartment and keep it for around six years on average.

As an example, Varga says a parent who bought a 65 square metre, two bedroom unit in Andringa Steet for R825 000 in 2004.

When both the children completed their university studies six years later, the unit was sold for R1.4 million in 2010, which equates to an annual growth of 9.82 percent.  

“I believe we have this steady capital growth due to the fact that every year we have parents selling and parents buying.”

A new development on campus, Andringa Walk will make an excellent investment with rental income of R4 000 per room. These units are priced from R1.4 million to R3.350 million with an average price of R1.940 million.

Varga says in Stellenbosch, they have always had more student parents buying compared to buy-to-let investors.

On campus we currently will rent out rooms for R4 000 while a two bedroom apartment can achieve R8 000 per month and bachelor apartments at R4 500 per month, says Varga.

She says they recently sold a two bedroom unit in Merriman street for R1 750 million (54 square metres with two basement parking) with a return of 4.6 percent in the first year and this increases annually.

“On average the rental increases around 10 percent per annum and over a period of five years the recent past has proved a capital growth of 9.8 percent per annum.”

A new development on campus, Andringa Walk, will make an excellent investment with rental income of R4 000 per room.

These units are priced from R1.4 million to R3.350 million with an average price of R1.940 million.

She adds that this is an ideal buy for any parent compared to simply paying rent and getting nothing in return. – Denise Mhlanga

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