Written By Em

A steep rise in student property investment has been recorded across the UK this year, as a weak pound post-Brexit and the superior yields and occupancy offered by student accommodation in university towns and cities capture investors.

According to estimates by Savills, student property investment will reach £5.3 billion by the end of 2017 – a 17% increase on 2016. It is believed that Brexit may well have intensified appetite for UK student housing, as Savills recorded a huge £2.1 billion transacted after the referendum, compared to £1.9 billion earlier in the year.

Demand for student housing assets has outgrown the supply of available stock, however. Of the £4.5 billion traded by Savills last year, £1.1 billion (25%) involved forward funding developments, while £223m (5%) was for development sites. Existing stock made up 69% of trades – the lowest proportion on record.

These growth figures are supported by The Mistoria Group, which specialises in high yielding investment property. The firm has seen demand for student property investment in the North West soar by 38% over the past year. The largest rise in investment came from Turkey, which accounted for 20% of the growth, followed by the UAE (9%) and Hong Kong (5%).

Mish Liyanage, the Managing Director of The Mistoria Group, comments: “We have seen a large increase in international investors’ appetite for student accommodation. They are attracted to the UK because of the relatively low-cost student property on offer, and the excellent net yields that range between 12% and 15% in the North West. Investors have a wide choice of accommodation to choose from, such as HMOs [Houses in Multiple Occupation] to purpose-built accommodation.

“There is a general shortage of student accommodation across the UK, and especially in university cities such as Liverpool and Plymouth. In Liverpool, there are now 21,700 PBSA [purpose-built student accommodation] units, meaning 2.1 students for each unit. With supply of a further 12,400 units either under construction or with planning permission, this ratio just 1.4.”

He believes: “Liverpool is a great university city to invest in. An HMO property with a superior spec can deliver investors an average gross rental yield of 13%, leveraged return on investment of 35% plus, before any charges and voids. A three-bed HMO, which houses three students, can be bought from £120,000 upwards in Liverpool. The return on investment is very attractive too, with 13% (8% cash rental and 5% capital growth). The gross rent on the property will exceed £1,235 per calendar month, as each room is rented out.”

Landlords, have you turned to student property investment?

Both house and rent prices are expected to rise at a similar rate over the next five years, according to the latest residential property forecast from Knight Frank.

The company predicts that average rents across the country will increase by 1.2% this year, 2.5% in 2018, 2019 and 2020, then by 3% in 2021 and 2022 – total growth of 14%.

In London, rents are expected to rise by 0.7% this year, 3% in 2018 and 2.5% in 2019, followed by three years of growth at 3% – a cumulative 15%.

However, rent price growth in the outer prime London market is forecast to see less robust increases. For this sector, Knight Frank predicts that rents will fall by 3.5% this year and by 1% next year, before returning to growth with an increase of 1% in 2019, 2% in 2020, 2.5% in 2021 and 3% in 2022 – a total rise of 8%.

Regarding house price growth, Knight Frank forecasts an average increase of 1.5% this year, 1% in 2018, 2% in 2019, 3% in 2020, 3.5% in 2021 and 4% in 2022 – a cumulative 14.2%.

The firm expects house price growth over this five-year period to be led by gains in the Midlands, East of England and North West.

The report states: “Once the Brexit deal is completed, we forecast rising momentum across the market, with price growth reflecting this in many locations. The variations currently observed in the prime housing markets in London and beyond are set to continue.

“The UK may now be entering a period of interest rate rises, but, even so, we expect rates to be low compared to long-term norms by the end of the forecast period. While development levels are rising across the country, the shortage of new homes is unlikely to be fully reversed in the coming years, and that will underpin pricing. On the other hand, factors such as deepening affordability pressures and property taxes will continue to weigh on pricing.”

Yesterday, we reported on the Government’s plans to unlock a £25m fund to develop more and better housing.

The Government has launched a new £25m fund to help local authorities deliver the high quality, well-designed homes that the country needs.

Yesterday, the Housing and Planning Minister, Alok Sharma, announced that the Planning Delivery Fund is now open for bids, and will support ambitious local authorities and third sector organisations in areas of high housing need to plan for new homes and infrastructure.

Initially opening up £11m of the fund, councils will be able to apply to help gain the skills or capacity they need to deliver high quality housing growth at scale and implement wider planning reforms. The fund is aimed at encouraging more innovation in the design quality of new housing developments, as well as providing design advice and support to local authorities.

Government Unlocks £25m to Deliver more Homes

As part of the Government’s plans to raise housing supply to 300,000 per year on average by the mid-2020s, as announced in the Autumn Budget, a package of measures has been revealed to boost local authority planning capacity, support councils in taking a proactive role in planning, and encourage ambition and leadership in the delivery of new communities.

Other measures announced along with the £25m fund include:

• A further £3m funding to support the delivery of the 14 garden villages that are part of the Government’s existing programme.
• A consultation on plans to allow the creation of locally led New Town Development Corporations and help speed up the delivery of new garden towns.

Sharma comments: “Locally led developments have enormous potential to deliver the scale and quality of housing growth that we need. By supporting our local authorities, we will be able to unlock more homes where people want to live.

“These measures, including the £25m of Government support, will help develop new communities that will not only help deliver high quality well-designed homes, but will also bring new jobs and facilities, and a boost to local economies.”

Across England, the Government is currently supporting 24 locally led garden cities, towns and villages, which have the potential to deliver around 220,000 homes.

Backed by £16m funding, a further £3m has been allocated to 14 garden villages in the programme, to fund dedicated staff, studies and assessments that are essential in delivering successful garden villages.

The Government’s Housing White Paper in February 2017 committed to the creation of New Town Development Corporations, which would be overseen by the local authority or authorities covering the area proposed for a new garden community, rather than by Whitehall. The Government is now seeking views on this proposal.

The first part of the Planning Delivery Fund allocation of £11m will be open to bids for the financial years 2017-18 to 2018-19.

A garden town is a development of more than 10,000 homes. Garden villages are smaller settlements of between 1,500 and 10,000 homes.

The 14 garden villages are: Long Marston, Oxfordshire Cotswold, Tresham, Culm, Welborne, West Carclaze, Dunton Hills, Spitalgate Heath, Halsnead, Longcross, Bailrigg, Infinity Garden Village, St Cuthberts and Handforth.

Russell Quirk, the Founder and CEO of online estate agent eMoov.co.uk, responds to the announcement: “Another snappy Government initiative in an attempt to grab headlines and, while their intentions might be good, the money itself is quite pathetic in the grand scheme of things.

“Whilst we argue whether we should pay £40 billion or £50 billion to the EU, such derisory sums supposedly aimed at helping solve our housing crisis are disappointing to say the least, and to open the fund up to councils and third sector organisations via a Blue Peter-esque competition format will only further slow the process.”

He continues: “An additional £3m for ‘studies and assessments’ of the already existing garden village initiative shows how off the pace the Government is. By now, they should be laying foundations, and to allocate just £100,000-£275,000 to each of a number of garden village schemes is akin to knocking the cost of Phil Hammond’s milk bill off of the national deficit.”