A number of companies in Singapore have been buying buildings across the world that house students. Driving this recent trend has been the fact that these types of properties provide returns that are independent of many of the factors that adversely affect other forms of real estate, including office buildings and shopping malls.
But while student accommodations have become an attractive investment for companies operating on the prosperous island city-state, finding quality properties is quickly becoming difficult for them.
The Benefits of Buying Student Accommodations
Buying student accommodations provides two benefits for those who invest in them. Not only do they add diversity to an investment portfolio, but these properties do not suffer through the fluctuations in rental income and property valuation that other types of real estate commonly do. This is because occupancy rates and rental growth are not related to the strength of any given economy.
One of the companies that has been participating in the trend has been Singapore Press Holdings (SPH), which is a media conglomerate that actually earns most of its money from real estate holdings. They recently bought more than a dozen student housing complexes in the United Kindom for $238 million. The company believes that student housing is a way to generate significant recurring income.
Though Singapore companies are not just buying student accommodations in the United Kingdom. During the last 3 years, companies in Singapore have invested $5 billion buying student housing the United States, making them the number one foreign investor in that market.
The Pitfalls of Buying Student Accommodations
While student accommodations has been attracting much Singapore investment, the sector is not without its pitfalls. First and foremost, property valuations of such buildings have risen in recent years, and this has resulted in lowered yields. 5 years ago, student accommodations in the United Kingdom generated yields in the range of 6-7%, but today these yields have fallen to 5-6%.
The risks of buying student accommodations have also increased, too, in spite of these properties offering returns higher than other types of real estate. Due to the increased demand for student housing from large companies, those looking to purchase a portfolio of such buildings have to pay a premium to do so.
Some industry experts believe that it is probably already too late for new investors to enter the sector. They also believe that there is a risk that government intervention could hamper the market. This is because many governments would likely stand in the way of building owners raising rents exorbitantly high.
Issues Investors in Student Housing Must Understand
Those companies considering investing in student accommodations need to understand that not all markets are the same. Some markets, such as in the United States and in the United Kingdom, are mature. This means that investors can purchase existing properties there. But other markets, such as in Australia, are not so mature. In these markets, investors would likely have to develop such properties.
Another issue for investors to understand is the importance of quality property management. In order to maximize returns, investors must seek out operators who have the know-how to fill rooms. In many ways, it is no different from owning hotels.