Booming student housing market a boon for investors, say experts

Globally, student housing has become one of the most sought-after types of property in the commercial real estate market, with demand exceeding supply in most countries, including SA. Investments in student developments are, therefore, potentially very lucrative.

Growthpoint Properties, the largest local real estate investment trust (REIT) listed on the JSE, is taking advantage of this opportunity, and is leading the way with award-winning student accommodation developments.

The company’s co-investment in purpose-built student accommodation is a transformative initiative, creating vibrant off-campus student communities, and offering investment partners an opportunity to capitalise on this trend. 

The Growthpoint Student Accommodation REIT is one of three unlisted investments in specialist alternative real estate asset classes offered by Growthpoint Investment Partners, a ring-fenced, fully resourced division within Growthpoint. Growthpoint is a cornerstone investor in these investments and plays a management role.

During Invest to Thrive, a recent Business Day Dialogue hosted in partnership with Growthpoint Investment Partners, a panel of experts put the spotlight on the booming student housing market and the investment opportunities it presents. They also weighed in on the ever-changing National Student Financial Aid Scheme (NSFAS) landscape and how it affects the sector. 

WATCH THE DISCUSSION BELOW:

George Muchanya, head of Growthpoint Investment Partners, explained that student accommodation is an emerging asset class offering significant opportunities for investors with a long-term time horizon, including predictable and stable cash flows. 

“Investor interest in real estate tends to be very selective. While traditional real estate asset classes like office space, retail and even logistics spaces have lost their lustre for some investors, student accommodation offers exciting opportunities,” Muchanya said.

“Though student accommodation is not an asset class that is well covered locally yet, it offers strong market fundamentals. Those investors who have come on board are benefiting from positive returns as well as the knowledge that they are making a positive social impact.” 

SA often lags behind international trends. More developed markets such as Australia, the UK and Europe continue to struggle to meet the demand for student accommodation as student numbers grow, said independent property analyst Keillen Ndlovu.

“While many developed countries experience record-high numbers of students, purpose-built student accommodation volumes have declined to near-decade lows. As a result, student accommodation rentals are growing at double-digit levels, and yields have remained stable compared to other sectors. This is despite rising interest rates.” 

In the UK, student accommodation has been more resilient than other asset classes and a better performer. In Europe, residential construction costs have been increasing, the number of permits issued for residential buildings has been declining, and rental growth is finally catching up with building cost increases. 

As the number of new students continues to outpace the number of beds coming into the market, investors, including fund managers, institutional investors and private wealth firms, are starting to recognise the benefits of investing in student accommodation.

Purpose-built student accommodation offers students a number of advantages, including Wi-Fi, laundry facilities, excellent security, study and meeting rooms, recreational facilities and lifestyle programmes.

Amogelang Mocumi, fund manager of Growthpoint Student Accommodation REIT, which has invested in a growing portfolio of well located, modern, purpose-built properties in Johannesburg, Durban and Cape Town, said that the demand for student accommodation will likely remain high given that universities are not building new accommodation.

“This is a very resilient sector underpinned by strong sector fundamentals, including supportive structural demand and supply dynamics and supportive demographics. Strong occupancies will continue to drive rental growth.” 

Lerato Nage, CEO and technical director of KEA Capital, agreed that purpose-built student accommodation had significant investment appeal.

Despite facing challenges, government’s NSFAS mitigates many of the risks for investors. NSFAS students living in approved private accommodation are eligible for a capped housing allowance of up to R50,000 for 2024 in metropolitan areas and R41,000 in other regions.

“More than half of all tertiary students are funded by NSFAS,” said Nage. “Though the scheme has shortcomings, government are trying to address the problems, and I don’t believe they will allow it to fail. We have received assurances from NSFAS that the annual rental allowance won’t be reduced in the 2025 academic year.” 

The sector, he said, was negotiating with government to unlock value through property rebates for purpose-built student accommodation and tax relief. “There is no question that student accommodation is an investable asset class with the added benefit of being an impact investment.”

The fact that student housing makes a positive social impact is one of the most appealing aspects of this alternative asset class for Motlatsi Mutlanyane, head of Alternative Investments at Momentum Investments. 

“This is a very resilient asset class which even managed to hold its own during the pandemic,” he said.

It's a sector that offers a competitive yield compared to other asset classes, is predictable and offers few risks, agreed Seipati Moichela, Real Assets portfolio manager of the Eskom Pension and Provident Fund.

Jan-Daniël Klopper, head of Manager Research at Mentenova, said that the imbalance between supply and demand offered good opportunities for investors. 

This article was sponsored by Growthpoint Investment Partners.