Student property has thoroughly shed its former status as a niche investment. In the early stages of this year total investment value in the sector is expected to hit the £2 billion mark, according to a recent Aspen Woolf report. Investors are being drawn into student property largely by high returns. Last year, returns averaged 13.7%, well ahead of the average buy-to-let property, so it is not hard to see the allure.

Student property has thoroughly shed its former status as a niche investment. In the early stages of this year total investment value in the sector is expected to hit the £2 billion mark, according to a recent Aspen Woolf report. Investors are being drawn into student property largely by high returns. Last year, returns averaged 13.7%, well ahead of the average buy-to-let property, so it is not hard to see the allure.

Probably the first thing that novice investors learn is that higher returns usually accompany higher risks. Student housing is definitely a high-return investment at present compared to other types of property, but does this mean it is also high-risk?

A rise in numbers

There are certainly a few factors that work in favour of student property development and provide stability. Universities are not things that tend to disappear overnight – or disappear at all in normal circumstances. This provides a degree of stability and consistency to the market of student tenants. As for numbers, these have been rising for several years and even the huge increase in tuition fees a few years ago seems not to have left a lasting dent. Next year, caps on new student intake are going to be abolished and the UK is also in the process of a seemingly successful drive to attract international students. For the time being, at least, it seems that demand levels are fairly safe.

International Students

With the increasing number of international students and a generally more discerning student crowd, investors are turning more and more towards dedicated student developments. These developments – offering student “pods” with shared amenities – offer prime locations and good living standards. They tend to prove popular with international students in particular, and also frequently offer the attractions of a fully-managed, hands-off approach.

Off Plan

However, this is also where one key risk is introduced. Many advertised student properties for sale are often off-plan in order to fund development with investor money, and this is always a more risky approach than buying a property that has been built. By buying before construction, you are introducing development risk, and this could bite you if anything goes wrong with the construction process or the company. Good research should always be carried out into the market and all companies involved to try and ensure that risks are minimal.

Due Diligence

However, on the whole it seems that student property is not an especially high-risk investment for the returns on offer. Occupancy rates are high, demand is strong and it seems that for the foreseeable future the chances of this situation continuing are strong. Nonetheless, it is absolutely vital not to assume that any investment in the student property sector will automatically realise its full potential and prove to be a roaring success. This is not the case. For instance, one development consisting of student properties in Bradford recently failed to meet expectations and is now seeing three floors turned into a cheap hotel. Good-quality, well-located property choices and research into demand within the particular, local market are essential if you want to succeed.

 

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