Industry players say the rising number of university students who need to be housed in privately owned accommodation off campus has created attractive buy-to-let opportunities for investors.
Seeff Stellenbosch agent Jacques Becker says last year 27823 students were enrolled at Stellenbosch University but only 5200 could be accommodated in university residences. So roughly 22000 students had to rent. The same scenario emerged this year.
Becker says the fact demand outstrips supply means buy-to-let investors can earn a gross annual rental yield of up to 10%. That's despite many student tenants paying rent for only 10 months of the year. That is far ahead of the average gross rental yield of 6% for SA as a whole, according to the Payprop rental index. The latter is based on data collected from 53000 rental properties across SA.
Becker says there are about 170 sectional title apartment blocks suitable for student letting in Stellenbosch but rents can vary dramatically. Bachelor and one-bedroom units fetch from R2500-R6000/month while two-bedroom units let from R4000-R8500/month. Becker says it all depends on location.
The area close to the campus between Banghoek Road, Die Laan, Andringa Street and Cluver/Marais streets is the most sought after. Prices of bachelor flats in this area range from R950000-R1,3m. The latter being older, larger (46m²) apartments such as Son Vida or upmarket apartments such as Huis Piron (28m²).
Two-bedroom apartments on and near campus can range from R1,2m in a block like Bergville to R2m in Rattray. An apartment selling for up to R2,5m is not uncommon but Becker says these are mostly around Stellenbosch's main tourist areas and not necessarily let to students.
Prices drop significantly the further north or west you move away from campus. In entry-level schemes such as Prinspark and La Rez, asking prices for bachelor and one-bedroom apartments are around the R450000 mark while two-bedroom units sell from R600000-R750000. "But this area is not ideal for walking to and from class at night, which has an impact on demand."
However, smaller, cheaper units typically achieve higher yields than their larger, more expensive counterparts. Louise Varga, projects manager for Pam Golding Properties in the Boland & Overberg regions, agrees that short supply and high demand for rental accommodation around the Stellenbosch campus mean that both rentals and prices have experienced upwards-only growth over the past five years, unlike many other parts of SA's housing market.
At The Merriman, two-bedroom units that rented for R6000/month and sold for R1,54m in 2008, last year fetched rent of R9000/month and sold for R2,07m. That represents capital growth of 34% and rental growth of 50% over four years.
At Boschenpark, two-bedroom units that sold for R995000 in 2008, last year changed hands at R1,27m: capital growth of 28% over four years. Rentals rose 50% over the same time, from R5000/month to R7500/month, translating into a total return (income and capital growth) of an average 12%-14%/year.
Daphne Timm, area principal for Pam Golding Properties in Grahamstown, reports a similar trend. She says at least half of the 7250 students enrolled at Rhodes University rent off campus. To meet the growing demand for smaller sectional title units, developers have entered the market quite aggressively over the past three years. Timm says that has placed some pressure on rentals. "Rental growth has slowed to an average 5%/year. Two years ago rentals were still escalating at up to 12%/year."
Two-bedroom units within a 1km radius of the campus in blocks such as 3rd on Milner, Summer Place and Aries Nest sell from R550000-R890000. Rentals are around R4400-R6000/month. Timm says investors have had annual price growth of anything from 2%-10% over the past three years. Total returns average 6%-8%/year.
The university enclave of Potchefstroom also boasts an increasingly active student letting market. Seeff Potchefstroom licensee Paul Kruger says student numbers at North West University Potchefstroom total around 22000 but only 4800 can be accommodated in varsity residences. Kruger says buy-to-let investors in the student market have had rental growth of 6%-10%/year over the past six years and capital growth exceeding 8%/year, depending on location.
That compares with an average rental increase of 4,5% across SA for the year to March (Payprop figures) and an average SA house price growth of 5,8% in May, according to latest figures from FNB. Kruger says investors are generally earning income yields of 9%-11%/year and should be prepared to pay anything from R12000/m² to R20000/m² for units within walking distance of campus.
Similar to Grahamstown, developers have also started to re-enter the Potchefstroom sectional title market to cash in on the growing demand for student accommodation. Kruger says this may create a temporary oversupply. However, most of the new stock is being developed more than 1km away from campus.
It's not only SA's student housing market that has emerged relatively unscathed from the global economic downturn. UK property group Knight Frank says student property was one of the best-performing real estate classes in the UK over the past three years.
Knight Frank's annual student index for 2012 shows that student property delivered a total return of 9,2% for the year to September across England and Wales. That comprises an income return of just over 6% and a rise in capital values of nearly 3%. James Pullan, head of Knight Frank's student accommodation division, says rising rents in a structurally undersupplied market in all key English university towns will continue to drive the outperformance of the student market. He expects the sector to again deliver a total return of more than 9% for the year to September 2013.
Source: FM
