Property investment has become much more difficult. But a new report from Savills suggests that the student rental sector could be a safe haven for investors…
A recent report from the Council of Mortgages Lenders reveals that the investment sector has been badly hit by the credit crunch.
Buy-to-lending accounted for just 6% of all gross mortgage lending in the first quarter of 2009, down from 12% a year earlier.
There were 22,400 new buy-to-let mortgages advanced in the first quarter, down from 38,000 in the fourth quarter of 2008 and 72,400 in the first quarter of last year.
Purpose-Built Student Housing (PBSH)
However, the investment market is not a single entity and some segments – notably the student market – have weathered the storm well and look set to expand.
A recent report from Savills argues that the burgeoning purpose-built student housing (PBSH) sector, continues to offer good returns and is set fair for the future.
It has, says Savills, "been one of the most resilient investment sectors during the current economic downturn … demand is high, supply is low, rents are rising and many private operators are already fully booked for the next academic year."
Supply & demand
Nationally, average rents for PBSH grew by five per cent between 2007/08 and 2008/09, and by seven per cent in London.
Much of this growth has been driven by rising student numbers and a limited supply of stock.
The student market is expanding rapidly with undergraduate student applications rising by nine per cent in 2008/09.
London is a particular growth area, says the report, thanks to a 30% increase in full-time students in the last ten years and an 88% increase in international student numbers.
But planning restrictions, and the current difficulties in the new-build sector, mean that the supply of PBSH has failed to keep pace with this demand.
To put it in context: the 50,000 PBSH beds currently available in London are less than the annual intake of first year students alone.
Investment opportunities
Savills are not alone in highlighting the potential of the student sector. A recent report from King Sturges comes to a similar conclusion:
"It is our opinion that the continued and projected growth in student numbers, both domestic and foreign, coupled with a tough planning and funding environment, point to a continued imbalance of supply and demand.
"It is this simple supply and demand imbalance that points to pent up rental growth projections and therefore the attraction versus other commercial and residential investment opportunities."
Investment specialists Assetz are equally bullish and argue that the student sector, whether in traditional shared houses or an apartment in private university halls, offers high net yields (approx 5-6 %) thanks to strong demand.
Stuart Law, Chief Executive of Assetz, comments: "Student property offers investors a high income investment, partly due to huge tenant demand and partly now as a result of the relatively low mortgage rates available.
"With traditional buy-to-let landlords currently seeing stable, rather than growing, rents and rising unemployment underway, this is one sector of the property market which is set to benefit from the economic downturn and is a great diversifier."
Words of caution
Investors, however, should not get involved without the usual due diligence. Patterns of supply and demand are crucial, and Savills note that in some parts of London there is an excess of rental stock available that is offering competition to PBSH.
Moreover, while the current Government is still committed to expanding university numbers to 50 per cent of 18-30 year olds, it remains to be seen whether that will continue.
And the same holds true of the number of overseas students – if the pound becomes stronger, levels of demand could shrink significantly.
