Student accommodation rentals are high in areas where there is short supply, is a comment from the General Manager for Rental for Harcourts Winelands/Atlantic, Jaco Spies. He says that in Stellenbosch for example, for a 12-month unfurnished, no-extra's unit, and sited within one kilometre of a campus, a bachelor apartment can fetch as much as R13 000.00 a month, and this is largely because parking is a challenge. "Properties further away from a campus, can expect a 20-25% drop on that price."
Levies and property rates are also playing a role in increasing rentals.
Since 2015 they have been rising rapidly, so investors have to consider that while there are potential profits to be made on a student rental, factoring in these monthly obligations can make a property unaffordable for students who need to find a job to support their rental obligation. Most students, however, depend on their parents to help them, which is yet another factor that a student property investor needs to consider as he or she will need some form of security that the rent will be paid, and on time.
NSFAS
There are students who are assisted by the National Student Financial Aid Scheme (NSFAS), but there are conditions to their receiving support, such as not being allowed to make additional payments to their rental situation, so water, electricity, wifi and security have to be included in the monthly rental. "NSFAS-supported students are generally only receiving R3 200 a month in an area like Potchefstroom, in comparison to their privately-funded peers who pay anywhere up to R4 350 for a one-bedroom," says Erika Le Roux, of Just Property in Potchefstroom.
"Commune-living such as room-sharing and apartments is therefore a popular choice by students". She also mentions that investors looking into purchasing these types of student accommodation in the area, should try to find out more about the NSFAS's specifically-accredited properties. "There are ample properties on the market at good prices, which opens this door, and when coupled with a strong rental market, it can translate into a really good investment."
Location
The consideration about where to buy a student property, is very important. For example, as pointed out by Leslie van der Merwe, franchisee of Just Property Prime, near Rhodes University in Grahamstown: "We have plenty of vacant accommodation due to Rhodes strategy to target the NSFAS students. Also, Rhodes is no longer the university of choice for the wealthy student after the university was impacted by the Fees must Fall campaign.
"The biggest challenge in the area, however, is that the request is for 10-month leases, and the rental fees can't cover the costs of the other two months. This has resulted in property rental fees coming down, but this presents an opportunity for investors to acquire great properties at low prices."
What are students looking for?
Overall, and agents from Just Property have contributed to this list, students are seeking properties that have the following:
- 24-hour security
- Fibre wifi.
- Coffee shop.
- Gym facilities.
- Walking distance to campus.
- Undercover parking.
- Backup power systems.
Furnished or unfurnished?
Preferably unfurnished is the advice from Spies, who points out that "the yield on a furnished property is basically the same, and owners therefore do not need to use capital to buy furniture." That outlay can add to the overall costs of a property and there is no guarantee that a student will care for the furniture anyway. Having to replace a mattress, for example, or crockery, all add to diminishing the return on investment.
Challenges
Graham Ross, General Manager at Just Property Bloomberg, comments: "A challenge for investors is seasonal rental fluctuations but it remains that apart from students, there may be other demands for rentals in an area, from sectors such as tourism, even university events and the hospitality environment such as guesthouses, mixed-use developments, and green investments as sustainability gains a stronger foothold."
Another challenge for investors is to meet their running costs, such as maintenance. Spies warns that buyers need to set aside "at least 5-10% of their rental income for upkeep, and if not used, to keep it aside for roll-over years."
Return on investment
"Great returns can be expected if an investor can keep the student rental for a minimum of 5-10 years," says Spies. "That is based on the assumption that the rental is covering rental commissions if using an agent, levies and special levies where applicable, and capital gains tax."
Many parents consider buying a small apartment for their student child, who can rent out a room to a fellow student. When their child has finally completed their university years, some 4-5 years later, many such owners decide to keep the property as a pure rental, and if in a high demand area, could be paying off a home loan very quickly, and earn a decent passive income.
Traditionally, properties close to further educational facilities attract a higher rental than would be usual with any other type of property, meaning that a return on investment may be realised earlier than expected.
