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Student accommodation has long been an attractive property investment segment for both listed and non-listed funds in other parts of the world including Europe, the Middle East, the Americas and Asia/Australasia.
Much of this interest has been in middle to upper end units that attract, by South African standards, high rentals in upmarket units, says Frank Reardon, Divisional Director: Broll Property Group Broking KwaZulu-Natal.
“In South Africa the exponential growth in the privately supplied student accommodation sector has seen large swathes of our inner cities being transformed through redevelopment from derelict and underperforming office blocks to well managed student or residential accommodation.”
Reardon explains that the huge undersupply of student accommodation around the country and the strong income generated by government assisted/backed leases make the sector an extremely profitable one for developers with the requisite risk reward appetite and development experience.
These conversions that often breathed new life into CBDs were at the forefront of urban regeneration and were largely executed by private property developers. Difficulties with sourcing finance in areas that were historically “red lined” by the banks and on leases that were often shorter than three years meant that many developers steered clear of larger capital upgrades that support long-term asset values.
SA Corporate Real Estate Fund and a few other listed property funds led the institutional foray into the segment, however, the announcement of the imminent listing of the Inkunzi Student Accommodation Fund in September promises to take the sector to new heights.
“The emergence of institutional money into the sector will create greater emphasis on the quality and condition of the underlying assets from investors that need comfort from the fact that their investment has legs,” he says.
While there has been student housing accommodation stock for sale it has proved an elusive investment for many investors as, unlike most commercial property investments, it is not supported by long leases. This has created caution from the banks both in terms of willingness to fund investments and the values found for the individual assets.
He adds that the circumstances appear ripe for the sector to move up a level on the back of greater institutional investment which will hopefully trigger redevelopments of existing student accommodation assets to institutional grade investments and create greater comfort from the lenders.