By Andrew Batt:
EXCLUSIVE: They’ve been selling like hot cakes in Singapore this year, but concerns are now being raised about the long-term viability of U.K. student accommodation property investments.
No official records exist for the number of Singaporeans who are buying overseas property, however PropertyGuru understands that several thousand student property investments have been sold to buyers and investors from the city-state this year alone.
Tempted by guaranteed returns of up to 10 percent per annum for the first two years, and with an entry price of below S$100,000 in many cases, it’s easy to see why student accommodation investments have been one of the best-selling property asset classes.
In 2011, Knight Frank reported a doubling in returns to 15.1 percent in London, up from 8.4 percent during the previous year. But now, with a more than seven percent drop in admissions to U.K. universities, some are questioning whether the boom times may be coming to an end.
Growth in student rental rates has already started to slow while tuition fees are on the up according to flat-sharing website EasyRoommate.co.uk. The company also noted that demand for student rental accommodation has fallen.
Applications for university places fell to 425,858 this year compared to 456,581 in 2011. The drop comes as increased tuition fees of up to £9,000 (S$17,900) per annum come into effect for the 2012/2013 academic year. The average tuition fee for universities in the largest university towns and cities stands at £8,305 (S$16,518) per year.
Jonathan Moore, Director of EasyRoommate.co.uk, said: “The rise in tuition fees and the prospect of a debt mountain on leaving university was the final nail in the coffin for many would-be students. The drop in applications has eased the pressure on student accommodation and this has caused rent rises to slow compared to the wider market – something that will be very welcome to cash conscious students and parents.”
Ella Sherman of Singapore boutique property agency Premiere Realty Pte Ltd has been sceptical of student accommodation property investments for a while.
She said: “In my opinion developers bring this type of project to Asia because savvy British won’t buy it. There’s a huge volume of this product on the market, yet with student grants scrapped the number of students going to a university in the U.K. is going down, not up.”
The exit strategy has also been unclear. Sherman added: “You can only sell on to an investor, since only students are allowed to live in these purpose built blocks. The next investor will only buy if the yields are compelling, and this means you won’t see any capital growth.”
She also pointed out that, unlike Singaporean students, some British students have a reputation for hard partying and, in some cases, do not make good tenants.
She said: “The condition of the unit and common areas will deteriorate quickly, and your expected rental yields will go down because of this. Students will also move to newer blocks instead. It’s likely the value of the asset will drop if the rents go down rather than up.”
In a final word of warning, she added: “I predict some investors could be hung out to dry once the guaranteed yields are up. Singaporean investors need to conduct proper due diligence before they buy gimmicky products like this.”
Andrew Batt, International Group Editor of PropertyGuru, said: “Hardly a weekend goes by without another student accommodation investment from the U.K. being showcased for sale in Singapore. They’ve proved to be a very popular investment option and we’re likely to see more in the coming weeks and months. Just like with any investment, buyers should ensure they’re entirely comfortable with the risks, and that they do their homework.”
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