South Africa’s Student Accommodation Market Heats Up For Property Investors

Written by Staff

From Moneyweb

The insatiable demand for student accommodation in South Africa seen over many years should, in theory, be a boon for property developers.

Yet few industry players have tapped into this market by supplying rental units for students.

With over one million students registered at private and public universities in South Africa, according to 2014 figures by the Department of Higher Education and Training, opportunities for property investors are seemingly clear on the surface.

But on close inspection, investors are still on the fence about residential property investments and subsequently leasing units to students given the perceived risk of the market.

The prospects of dealing with delinquent tenants, rental arrears, high maintenance costs attached to properties and cumbersome legislations, which usually favour tenants, have been enough to discourage investors.

International Housing Solutions (IHS) MD Rob Wesselo said trying to convince institutional investors to invest in student accommodation is a hard sell, despite the market being heavily undersupplied.

“Student accommodation requires specific asset managers to run with the investment. It is very tough to get one of the typical institutions to invest in that area.

“There is plenty of research to show that residential is the one property class in South Africa where there is more demand than there is supply,” Wesselo said at the IPD South Africa Property Investment Conference held in Cape Town last week.

Another concern is that residential investments have delivered low yields for many years, which has spurred investors to bet on the commercial sector with sizeable yields.

IHS – a private equity firm focusing on the development of residential housing – has raised $US600 million (R7.7 billion) in the last six years for investments in affordable residential units. The group now owns about 8 000 rental units.

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