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Student accommodation - good investing

With the new academic year already underway at some Western Cape tertiary institutions, the demand for student housing has been as keen as ever.  

Pam Golding Properties reports consistent enquiries at its Stellenbosch and Cape Town offices, both from parents seeking rental accommodation for their student children, and investors wanting to buy properties to capitalise on the buoyant student rental market.  PGP reports that the consistent high demand for student housing, replenished every year, makes apartments which are appropriately sized for student use and located close to campus or a dedicated transport network, a sound investment opportunity.


Cape Town


“We have predominantly two areas that are in demand for student housing in Cape Town, namely the Southern Suburbs and City Bowl,” says PGP’s rental manager for the Western Cape, Dexter Leite. “These suburbs are located well for access to the University of Cape Town (UCT) and the Cape Peninsula University of Technology (CPUT), as well as for other tertiary institutions such as the AAA Advertising School and Boston City College.  The highest demand tends to be for two bedroom apartments which can be shared by two students – not only is this cheaper than renting individual one-bedroomed units, but it is also considered safer for the students.  The availability of secure parking is another key factor influencing demand, as is access to shops and other amenities, and to public transport or shuttle services such as UCT’s Jammie Shuttle.  Newer ‘lifestyle’ developments with gyms, restaurants and retail components, such as The Quadrant and Montclare Place in Claremont, are very popular for those on a larger budget.”


In the Southern Suburbs, Leite says a one-bedroomed apartment in one of these newer lifestyle developments can fetch around R4500 to R5500 per month in rent, with two-bedroomed units being let for between R8500 and R10 000 per month.  Older buildings are more affordably priced, with two-bedroomed units available at rentals of R4500 to R6500 per month.


In the City Bowl, studio apartments typically fetch R3750 to R5000 per month in rental, one-bedroomed units cost R5000 to R6000 per month, and two bedroomed units let for R6500 to R8500 per month. Among the most popular developments in this area are Mutual Heights, St George’s, Wembley Square and Perspectives.


“Among our most expensive student rentals to date have been lets in The Orangerie in Gardens,” Leite concludes, “where one can expect to pay around R11 500 per month for a two-bedroomed unit.  This is a superb option for those on a larger budget, as the complex has excellent security, is centrally located, and lies on the Jammie Shuttle route.”


At the peak of the property boom days, Leite says many parents were buying properties for their student children, and then holding on to them as investments for many years after their offspring had finished their studies.  That market has become somewhat more muted in the current economic climate – but certain buildings and developments continue to offer excellent investment potential.


PGP’s development manager for the Southern Suburbs, Bev Bloch, confirms that The Quadrant in Claremont has seen a large number of units sold to parents of students, mainly from KwaZulu-Natal and Gauteng.  “The two-bedroomed units have been most popular, with parents buying for children to share with a friend or sibling,” she says.  


“Prices for these have ranged from around R1.8 million to R2.3 million, while a few one-bedroomed units have sold to parents of students from around R975 000.  The resulting mix of occupants is dominated by business, medical, legal and actuarial students, mainly those in second year and upwards.  

They enjoy the trendy, secure environment, as well as the proximity to the Jammie Shuttle route.  Older and more serious students also make the most of having a library on the premises, while the location of Kingsbury Hospital across the road from the development has attracted a number of older medical students from all over the country.  


There is excellent potential in this development for investors – we do not have enough supply to keep up with the rental demand. ”


In the City Bowl, investors who are currently considering positioning themselves for the student market can obtain a one bedroomed apartment in Mutual Heights for R815 000, or a student pad in The Square for R640 000.  The latter is currently tenanted at R3800 per month.


Stellenbosch


PGP’s area manager for Stellenbosch, Louise Varga, says her office regularly sells to both parents of students and investor buyers.  

Their needs and outlook for the properties may differ, but both enjoy the promise of steady demand, as each year brings a new wave of students to the town, in need of a place to stay.  “You can always find a tenant for an apartment on campus,” she says.  “We typically have more student parents than investor buyers – but often the one becomes the other.”


“Parents typically buy an apartment intending to hold onto it for around six years,” Varga continues, “allowing their child or children to live there while completing their entire studies from first year to postgraduate.  Once their offspring’s academic life is over, some of them sell the property quite quickly – often to other parents whose children are just commencing their student years.  But we have also found that some of these owners realise the longer-term investment value of the property they have acquired, and hold onto it even after their own children have left the university, renting it out to other students.”

Purchasing student accommodation means a large capital outlay upfront – but Varga says at least the money is being invested, rather than paid as rent or residence fees, which are never to be seen again. And those who buy wisely can make a tidy profit on re-sale.  For example, Varga points to one set of parents who bought a 65sqm two-bedroomed apartment in Andringa Street in 2004, paying R825 000 for the property.  Both of their children used the accommodation while studying at Stellenbosch University, and on completion of their studies in 2010, it was re-sold for R1.4 million.  “That equates to growth of over 9.8 percent per annum,” Varga says, “a fairly common growth pattern seen over the past five years.”


Varga also reminds potential investor buyers to take a medium- to long-term outlook, considering the potential capital growth of their property as well as regular increases in rental income.  “Campus rentals in Stellenbosch currently stand at around R4000 per room – i.e. R8000 per month for a two-bedroomed apartment,” she says.  “A bachelor pad can cost up to R4500 per month, and rentals typically increase around 10 percent per year.”


For investor buyers wishing to tap into the student market, Varga says the new development Andringa Walk is an excellent buy.  


Being constructed on top of the Eikestad Mall, the development enjoys immediate proximity to the university campus, and will have excellent security – a key factor influencing demand.  Prices start from R1.4 million, going up to a ceiling of R3.35 million.  “One can expect to achieve rental income of at least R4000 per room,” says Varga, “perhaps more given that these will be brand new apartments.  An added advantage for investors is that transfer will only take place in January 2013, allowing them to enjoy capital growth on the developer’s time.”



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