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Invest in student flats: Buyer's guide

20 Nov 2013

Every year thousands of students from all over the country stream to Stellenbosch, Pretoria, Potchefstroom and Bloemfontein to embark on their academic journey.  Although these Universities all have residences which can accommodate students, the demand for accommodation far exceeds the supply, resulting in thousands of students having to find alternative accommodation each year.  

When buying a property, important factors such as bond costs, levies, rates and taxes, maintenance and management fees must also be taken into consideration. This should be weighed against your monthly return.

Seeff’s agents all agree that this is one of the main reasons that parents and investors choose to invest in the student market, but that finding the right property in your price range requires a lot of homework. Prospective buyers need to undertake comprehensive research on specific areas and apartment blocks to narrow down their search before entering the market. 

Jacques Becker, Seeff agent in Stellenbosch, says the student housing market in Stellenbosch has always been a captive market and buying property in the area is a good investment, especially when a property is close to the campus. 

He says two bedroom apartments/houses in Stellenbosch are especially popular among parents who buy property for their student children for the duration of their studies, because the second bedroom can be rented out to someone else, giving  the parent an extra income. 

He says in the case of investors, other criteria also play a role. Rental income versus price and the growth potential of the property are major considerations. Becker says usually the more bedrooms, the better the income versus price is, especially if you can manage to keep the property occupied at all times. 

“Depending on what the investor is looking to gain from the acquisition of the property, he will either decide to buy for growth or for a good rental yield. Finding both is difficult in Stellenbosch, but it is possible to find it if one keeps in mind that there are more than 170 sectional title schemes to invest in within a few kilometres radius from campus. “

According to Becker,  when you buy property in Stellenbosch it is advisable not only to compare that property to other apartments in different areas and schemes, but also to ask the agent for the recent sales in the specific apartment block in order to ensure that you are in the same ballpark as other investors. 

Educated buyers all agree that the property hot spot in Stellenbosch is found in the area between the borders of Banghoek road, Die Laan, Andringa street and Cluver/Marais streets.

He says this area is more expensive and sought after because of its proximity to the campus. In general, owners can expect to get better growth here. He says there are, however, good apartment blocks outside this boundary, and also blocks on campus that have a slower growth. Thus doing your homework with the correct information from the right agent is of the utmost importance, he says. 

“Growth in this highly sought-after area, which is in close proximity to classes, can also be attributed to the scarcity of well-priced property, where buyers who have the means to buy are often unwilling to compromise on position or don’t have the time to wait for the right property. They then end up paying a premium and this premium price ultimately becomes the new market value, hence the growth.” 

Becker says property prices in Stellenbosch tend to drop significantly the further you move away from campus. 

Seeff Pretoria East agent, Pieter Bezuidenhout says  due to the shortage of land for new developments in the Hatfield/Hillcrest area in Pretoria the demand for student housing in close proximity to the University of Pretoria has reached an all-time high and the demand is consistently outstripping the supply by a large margin.

He says as a result, prices remain high and will remain so for the immediate future. This is especially true in the case of two bedroom apartments and bachelor flats which are within walking distance from the University, says Bezuidenhout.

“These two categories range in price from about R400 000 to R1.1 million taking into consideration that the average rent for a bachelor flat is about  R3 800 per month, while a two bedroom and two bathroom apartment will cost anything up to R6 000 per person sharing per month.”  

 Close proximity to campus generally makes for a good and safe investment, although there is a danger in over investing if you are not careful. If you enter the market purely as an investor, buying a bachelor flat in the R400 000 to R420 000 range is a good option. Bachelor flats are popular with investors for reasons such as low maintenance, high rentals, no transfer duties and a good return on your investment. 

According to Bezuidenhout, people who invest in a two bedroom flat are usually parents who have children, especially daughters, at University. The return on your investment may not be as high as in the case of a bachelor flat and factors such as security, levies and upkeep of the property may also seriously impact on your capital outlay. The most important consideration, however, is that the property must be within walking distance from the University. The closer your property is to the University, the higher the price but also the safer your investment.

Bezuidenhout warns against investing in old houses in order to turn them into student communes. He says following this route usually demands a hands-on approach, high maintenance and deterioration of the property. 

He says Duxberry and Lunnon Roads in Hillcrest and South Street in Hatfield are the most sought-after streets in these two areas. He says it’s important to make sure that properties include designated parking as the area around the University of Pretoria has little parking available.  

Seeff Potchefstroom MD, Paul Kruger, says like in Stellenbosch and Pretoria, the biggest demand in this town is also for two bedroom and two bathroom apartments. 

“If you invest in a student property your rent will typically be significantly higher in comparison to other buy-to-let markets in Potchefstoom and as a result your mortgage can be paid off much faster.” 

He says Potchefstroom is a solid and sustainable market to invest in as research shows that student numbers are set to rise in coming years. In the past six years, rental income has increased on average between six percent and 10 percent in the student accommodation property sector, he says.

Kruger says on the whole, the student property market has continued to be one of the most resilient investment sectors in South Africa during the economic downturn, since most rental incomes and property values remained stable or increased. He says capital growth in the last six years has been eight percent per year on average.’ 

Student properties within walking distance of campus cost between R14 000 and R18 000 per square metre on average or as high as R20 000 per square metre when only a stone’s throw from campus, he says. Rental income for a bachelor flat is around R3 000 per month, while it is around R4 000 for a one bedroom apartment and R6 500 for a two bedroom apartment. 

“Many developers are entering the student accommodation sector and this may create an oversupply. The affected accommodation are mostly units further than one kilometre from campus and that is why location is an important consideration when you decide to enter the market. Potchefstoom has three new developments (12-on-Tom, Hoffman’s view and Baccalaureus) that all offer good opportunities to prospective investors.” 

Martine Heymans, Seeff agent in Bloemfontein, says student houses, especially one and two bedroom apartments in Universitas and Langenhovenpark are a good investment since they are high in demand. He says once students get to their third or fourth year of studies they prefer to move from residences to cottages or townhouses that are more private, but still within walking distance from campus. 

From the above and judging from what agents across the board are saying, the most important considerations to keep in mind before investing in the student market are proximity of the property to campus, security, parking, price and avoiding the risk of landing with an empty apartment because of over-investing.

Finishing, running costs, how long you are planning to hold on to the property and what the possibilities for upgrading are, are also important.

According to Becker, buyers need to be mindful when buying properties which they'd like to renovate. Buying, renovating and selling immediately thereafter rarely works. Usually, the costs of transfer, renovation plus agent commission will not allow you to sell at a profit immediately.  

Renovating can be beneficial when you decide to convert a bigger, usually older property from a one bedroom to a two bedroom, or a two bedroom to a three bedroom, giving you an extra monthly income. An extra bedroom should also increase the value immediately, if done properly.

“But make sure that you are allowed to do so and determine the costs. Also consider parking when converting, the lack of allocated parking bays could be a drawback when selling.”

When buying a property, important factors such as bond costs, levies, rates and taxes, maintenance and management fees must also be taken into consideration. This should be weighed against your monthly return. 

The agents all recommend having a rental agent, especially if you reside far from your property as a rental agent will draw up the rental agreement, do the necessary credit and FICA checks, hold the tenant’s deposit in a trust, ensure payment to the owner and deal with general problems such as maintenance. The management fee of an agent is usually around 10 percent. 

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