Student accommodation ripe for listing

Johannesburg - An acute shortage of student accommodation in South Africa makes this type of property particularly attractive for developers and investors.

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.

The 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 Braamfontein.

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.

 - Sake24

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