Johannesburg - An acute shortage of student accommodation in
South Africa makes this type of property particularly attractive for developers
Student accommodation in foreign countries outperforms all
other property asset classes and players reckon there is no reason for it not
being possible in South Africa as well.
Richard Rubin, chief executive of Aengus Property, a
developer of student accommodation, says if there is a residential segment that
can credibly list, it's a portfolio with student properties.
“There is a gulf between demand and supply and that’s where
the opportunity lies,” he says.
In a recent report by the Department of Higher Education it
appears that out of a student population of 530 000 accommodation exists for
only 100 000 students.
Soula Proxenos, managing partner of the international
private equity investor International Housing Solutions (IHS), says there are
23 public universities in South Africa and more than half of the students do
not have access to student accommodation.
“Only about 10% of the current
students get student accommodation on the respective campuses.”
IHS invests in affordable accommodation in South Africa and
is also busy building a portfolio of properties with student accommodation
around the country.
Proxenos says numbers of students are rapidly rising and
there are about 72 000 foreign students in South Africa.
Aengus Property is one of the pioneers in developing
affordable but hypermodern student accommodation in Johannesburg.
By converting old office buildings in the city centre and in
Braamfontein into residential units the company is at the same time
contributing to urban renewal.
The company recently expanded into Durban in KwaZulu-Natal
and Port Elizabeth in the Eastern Cape.
Rubin says Aengus currently has 500 units and plans to
double the number to 1 000 by next year through new acquisitions.
He says the company has made its biggest acquisition yet in
Port Elizabeth by buying a whole street in central Port Elizabeth.
properties being converted into student accommodation include houses they were
operated as bed and breakfasts, as well as old boarding houses. The
redevelopment is being done by Aengus Investment Properties.
He says although rentals vary, a single unit can bring in R2
500 a month and a double unit R3 000 to R3 500.
These student units are not currently on the market.
But last year the company sold its interest in the Student
Digz property portfolio in Johannesburg which it co-owned with IHS, to IHS.
This portfolio consists of Dudley Heights, the Argyle
Centre, Baker House and the Skyways building in Hospital Street in
Rob Wesselo, the South African director of IHS, says the
portfolio has meanwhile been comprehensively upgraded and differs from other
student accommodation in being complete units in which students have their own
bathroom, living area and kitchen.
He says IHS has around 1 000 units in Braamfontein and 76%
of the students who rent the company’s units receive a subsidy, which produces
a reliable source of income.
“The income yield against which old buildings can be
upgraded is between 11% and 14%, which is exceptionally attractive.” The units
are managed by property services company JHI’s residential division.
IHS, together with a local developer, is also busy erecting
360 new student units in Bloemfontein across from the university. The first
phase’s 180 units sold like hot cakes, largely to individual investors at R670
000 per unit. IHS will not sell the second phase.
Wesselo says a new two-bedroom unit will generate a rental
of R6 800 a month.
Next on IHS’s agenda is Potchefstroom, where it will do a
similar student development.
Jacques du Toit, property analyst in Absa’s home loan
division, says that from an investment perspective the demand and supply
situation in the market for student accommodation presents an opportunity for
further investment and expansion. He believes the market will remain brisk
owing to constant flow-through, which will ultimately be reflected in total
yield (income and capital).
Investor demand for assets generating an increasingly
healthy income has doubled the total investment in the market for student
accommodation in Britain since 2010.
This investment shot up from £1bn in 2010 to £2.1bn in the
16 months to end-April, as indicated by research by Savills.
This asset class far surpassed the performance of other
property asset classes with an average annual rental yield of almost 6%.
Knight Frank’s report on student accommodation confirms the
figures and James Pullan, the head of student property, ascribes the
performance mainly to a structural shortage of student accommodation,
specifically in London. For this reason Knight Frank believes that the British
capital offers a top investment opportunity for student accommodation.
The total return (income and capital) for investors in the
year to September 2011 was 15.1%, the highest in London, compared with the
national average of 11.5%. Knight Frank expects that the average total yield
will exceed 12% next year.
In London this year the average rental for a one-person
student unit rose to £278/week from £257/week the year before.
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