New statistics show that the average gross cash rental yields for the HMO student investment property sector in the North West were 13% for the first three quarters of 2014, well ahead of the 6.37%* forecast for average student property yields across the UK, for this year. (*Source: Savills Report: The UK’s student housing sector, May 2014).
The research, conducted by The Mistoria Group, leading HMO student investment property investment specialists, also reveals that the gross cash rental yields for student property in the North West rose 8% year on year, and are up 22% over the last five years. What’s more, the yields are 5-6 per cent higher on average than the buy-to-let market as a whole, which stood at 6.2%* between April and June 2014. (*Source: BM Solutions).
According to The Mistoria Group, for the past five years student accommodation has been the strongest growing investment property market in the UK, and has continued to be one of the most resilient investment sectors, with rental incomes and property values have remained stable or have increased.
Mish Liyanage, Managing Director of The Mistoria Group comments: “An alternative investment to the UK’s more traditional property markets, student accommodation offers investors strong returns and this sector is continuing to see phenomenal growth. The domestic student population continues to grow with an extra 30,000 university places offered in 2014, and UCAS have reported they are expecting an all-time high of 500,000 applications this year.
“Investing in student accommodation offers a long-term investment option, as the property is highly likely to be in constant demand throughout the calendar year. Typical rents are significantly higher for student properties, than a comparable BTL property in the same city.
“Students will pay more for high quality, well-maintained accommodation than for the traditional run down and neglected shared houses, because there really isn’t a big price difference between poor and high quality accommodation, making the better quality properties highly sought after. Our recent research shows us that the vast majority of students want to live in high quality, shared accommodation, with good internet access and affordable bills.
“At Mistoria, we offer investors HMOs, located in the North West, which give cash rental returns of 8%-10% net per annum, from day one (this is not a projection). Also the geared yields should be high as 35%. In contrast, PBSA yields are traditionally guaranteed by the developer for the first 5 years and these figures are subject to speculation about rental increases in the coming years, which may, or may not occur. If the property does not perform as the developer predicts, the investor is left with an underperforming asset in year six.
“Student housing is increasingly a global asset class. Over the last two years, there has been a huge surge in student housing investment activity and investment in student accommodation is certainly big business in the UK right now. Last year saw over £2 billion of investment in the student sector.”
Retiree, Joy Townley from Calne, Wiltshire recently bought two investment properties in Salford through The Mistoria Group: “I decided that property was the right choice for me because of the current low interest rates and I wanted a better return on my capital. I live in the South West of England where property is extremely expensive. Buying investment property in this part of the country was out of the question and the North West is a growing market. The numbers just added up and I am enjoying s consistent income stream. I’ll be keeping hold of the properties for the long term.”
Investors who are thinking of buying student property should conduct thorough research before making a purchase. Mistoria has put together some tips on investing in student property:
- HMO versus student pods: Think carefully about the property you want to buy eg HMO or a student pod. Most student pods are sold ‘off plan’ – which means before they are complete, and in many cases before construction has even started – and come fully managed. This means you could expose yourself to risk on two fronts – ‘development risk’ and ‘management risk’. For example, the development may not be finished, or the developer may not have the skill or experience to manage the development and if they do, how much will they charge for their services?
- Mortgages: If you need to secure a mortgage to purchase a student property, this will be a lot easier for a HMO, as you will be able to go through traditional buy-to-let providers and will have access to the leading buy-to-let rates. Also, if you are building a portfolio, you can borrow on your equity in the HMO to fund further investments. With student pods, there is no established resale market, and due to the nature of this investment finance is very hard to find.
- Rent guarantees: Beware of ‘rental guarantees’ offered by developers. This can often be an overstatement. The guaranteed rents are attractive to investors, but often they fail to materialise. Investors are actually subsidising the guaranteed rent by paying an inflated price for the unit they secure. There have been a number of student pod schemes that have stopped paying out the guaranteed rents soon after completion and investors have then discovered that the real market rate for the rents is much lower, reducing their yield. They have been left with an underperforming asset, that is difficult if not impossible to sell at an acceptable asking price to the investor.
- The exit strategy: With a normal buy-to-let, you can sell the property at any time on the open market, through a reputable estate agent and expect a reasonable capital appreciation. However, selling a student pod will encounter problems. For example, who decides the market value? As a piece of real estate per sqm it is very expensive (double the average market value), there is no established resale market. Who will sell it? Is it an investment, or is it a piece of real estate?
For further information, please visit Mistoria Group or call 0800 500 3015.