Friday, January 18, 2013

Student Housing: An investment opportunity?


Author: Micel Schnehage -

Student housing: An investment opportunity?

Long-term investors stand to benefit.

JOHANNESBURG – Property developers, investors and parents are taking advantage of a massive backlog in student housing to enter what could potentially be a lucrative investment.
There also appears to be a growing trend in the number of private investors and parents climbing on the bandwagon by buying residential units to let out to an annually growing number of students signing up for tertiary education.

This is especially true in academic hubs like Potchefstroom in the North West province, Stellenbosch in the Western Cape and Grahamstown in the Eastern Cape.

Principal of Independent Property Consultants (IPC), Monika Gaybba, says in the past three or five years, Grahamstown has seen a plethora of student developments but these have slowed down considerably. This means, however, that the town now has a healthy supply of potential student housing investments.
Gaybba says prices and rentals on student accommodation vary:
  • R485 000 for a 39m² one-bedroomed unit close to Rhodes University with a rental return of around R3 800 per month;
  • R800 000 for a 50m² two-bedroomed unit with an income of R6 048 per month, and
  • R950 000 for a 93m² three-bedroomed flat with a rental income of around R7 500 or more monthly
Gaybba says properties in Grahamstown have increased in value over a three to five year period which means that parents have not only recovered their money from their initial investment but have saved on accommodation for their student children. “Some parents sell the units once their children leave the university and some retain their investment and purchase other property to increase their portfolios with a variety of rental options. This is also due to confidence in the local market,” Gaybba told Moneyweb.
She added that investors comprised local, national and international buyers, including the parents of students. Others included academics, business or retirees seeking a good return on their investment. “The number of rental defaulters on students is less than on other residential properties being leased as students usually have a set rental budget,” said Gaybba. Many students are allocated fixed budgets in terms of bursaries and other financial assistance.

Pam Golding Properties’ (PGP) director Boland and Overberg, Louise Varga, says in Stellenbosch there are 12 700 investment opportunities in student accommodation with 6 000 of them being in the sectional title sector. “That tells you how huge the apartment market in Stellenbosch is,” Varga told Moneyweb at the annual Pam Golding media day in Cape Town on Wednesday.
Varga says the infamous town of Stellenbosch experiences an annual “apartment season” starting largely in September through to November where owners of these apartments wanting to dispose of their assets put properties on the market and those seeking student housing put in offers, including parents of prospective students.

“If you put in an offer in September, then you have October, November, December for transfer,” Varga said. Rental renewals usually occur in the same preceding months for the following year. Those choosing to hold onto their investments can then sign new leases in December for the following academic year.
Prior to the 2008 global economic meltdown, Varga said buyers were mostly investors seeking a yield on their investment. “Right now, we have more parents buying than investors,” she added.
Asked what the rough return on investment was on student accommodation in Stellenbosch, Varga replied: “You will buy a two-bedroomed apartment very close to the campus, let’s say for R1.5m and you will only rent it out for let’s say R8 000 a month. If you go and borrow R1.5m from the bank, your bond payment will be R15 000.”

So investors hoping to make a quick buck will be out of luck. Investments in Stellenbosch properties for rental to students will need to be long term.
The average turnaround time for selling property obtained by parents with a view to getting a return on their investment is seven years. “Now if you have a child (at university) and the rent you are paying is basically just your rent and you sell that apartment after seven years, you will most probably end up with your capital growth that you’ve earned and that’s paid for your child’s education. That is why parents are still buying”.
Students going to varsity and those leaving annually is tantamount to a constant flow of supply and demand, making this market a lucrative one. What has also happened in many instances is that demand has outstripped the supply due to an increasing number of students enrolling for tertiary education. This has in some cases, certainly in Stellenbosch and Potchefstroom, led to prices skyrocketing.

Varga points out that having, for example, two offspring at varsity at the same time, could set you back R8 000 a month which amounts roughly to an R800 000 bond.

While cities like Potchefstroom have in many ways been able to expand, towns like Stellenbosch are limited because of the surrounding winelands making expansion impossible. These are factors that lead to even higher price hikes in terms of demand and supply.
A ministerial committee on student accommodation recently released a report on the growing need for housing, saying of the 530 000 scholars who registered in the past year or so, universities were only able to provide lodging for 100 000 students or 18% of those who registered.
Dawie de Villiers, chairman of MidCity which services the Gauteng region says student accommodation is turning into a niche market. De Villiers says some developers are entering into partnerships with universities like Tukkies in Pretoria and the University of Johannesburg (UJ) in providing adequate student accommodation.

There also appears to be a move away from the dormitory-like housing of yesteryear making way for so-called student villages comprising suites of three, four or five bedrooms, a kitchen, lounge and ablutions.
De Villiers says while MidCity’s developments comprise suites of between three to five bedrooms, all students have their own rooms. The studios are all fully furnished and equipped. “They just arrive with their bedding and clothes.” This type of accommodation typically costs around R2 500 a month.
Another R300m student village known as the Ekhaya Junction is currently under construction, also in Johannesburg. The project is being undertaken by Junction-S which is a joint venture between Citiq, Jika Properties and Lapalaka Developments.

It services UJ, the University of the Witwatersrand and the Tshwane University of Technology. It’s being financed by Futuregrowth, a division of the Old Mutual Group.
Junction-S director, Cornelius Mokone, says student accommodation is a growing phenomenon due to demand. In many instances traditional residences provided by tertiary institutions in the past had fallen into disrepair and were costly to renovate.
Mokone said many parents had taken it upon themselves to purchase residential units ahead of their children going to varsity with a view to letting them once their offspring had graduated. This has led to prices near these places of learning to skyrocket.
It has also provided developers and investors with an opportunity to invest in a growing market. This phenomenon is not unique to South Africa with developers in the Netherlands, for example, turning to discarded freight containers to create funky student villages.
The Ekhaya Junction is about five kilometres west of the Pretoria CBD and will house 2300 students upon completion at the end of 2014. The village will include free wi-fi, study rooms, convenience stores, eco-friendly water heat pumps, laundry facilities, cleaning and maintenance and 24-hour security.
This is very much in line with similar projects elsewhere in Gauteng. Mokone says similar to a townhouse complex, students will be able to choose between two and six-bed units with communal kitchens and accommodation in both shared and single rooms.
De Villiers says strict rules currently apply and will apply in all of its student facilities. House mothers and fathers are in charge, security is tight and troublemakers will not be tolerated.
In the education hub of Potchefstroom Jaco Faurie of RealNet Properties says student housing, which comprises mainly units in complexes near the North West University which is situated in The Bult precinct, vary in price range with those closer to the place of learning being far more expensive than those on the outskirts of the university.
Faurie says the more luxurious units have been priced at around R18 500m² while the less lavish ones have been evaluated at R14 000m².
He says investors have shown a keen interest in acquiring student accommodation as there is still room for growth: “…an older two-bedroom unit selling for R665 000 will quickly draw tenants a monthly rental of around R5 000. An investor who paid a 20% deposit would thus comfortably cover his bond of about R4 600 per month and the monthly levy of around R350 with his rental income.”
Property and development company, Aengus, says it has a rapidly growing portfolio of student flats in Johannesburg, Durban and Port Elizabeth that is has created largely by refurbishing existing mothballed office blocks. Rentals for Aengus flats range from R1950 to R2500 per student, per month for 10 months of the year.

A higher education ministerial report on student accommodation has called on universities to enter into partnerships with the private sector to address the current shortages in metropolitan areas. Developers and investors are doing exactly that.
The report says there is definitely a gap in the market for safe, secure and affordable student accommodation close to university campuses and other academic precincts.

Thursday, January 17, 2013

The pitfalls of private student accommodation

Author: Kentse Radebe  -

14 January 2013 12:43

The pitfalls of private student accommodation

Catering for the lower end of the market presents significant challenges.

JOHANNESBURG – The increase in the demand for student accommodation has been beneficial for private property investors, particularly as the majority of students in private accommodation are funded through the National Student Financial Aid Scheme (Nsfas), administered by universities. However, Marius Minne, CEO of South Point properties, one of the largest private accommodation providers, argues that the funds are neither enough nor consistent.

South Point caters to over 90% of students who are on Nsfas.
Providing decent accommodation at an average price of R2 500 a month with rising maintenance costs for the lower end of the income earning segment of the market is nearing the impossible. In 2012 Wits University had 950 students who were on Nsfas and living in private accommodation. Wits allocated R19 000 a year per student towards private accommodation. At the University of Cape Town (UCT), 535 students were on Nsfas in 2012. The Nsfas allocation at UCT amounted to R11 400 per student but was topped up by UCT to R20 400. Both universities have existing relationships with private accommodation companies such as South Point and Aengus Properites, among others. As such, students must choose from accommodation offered by these companies or funding will not be provided.

The Nsfas allocation is falling short by about R4 600 and R6 000 a month. At the Durban University of Technology, students on Nsfas living in private accommodation are not funded, as the university has no control over accommodation. The shortfall is left for students to cover; according to the Ministerial handbook student’s personal accommodation debt stood at R85m in 2010.
Which leaves property companies in a conundrum.

The rising cost of maintenance is placing South Point’s profit margin under immense pressure says Minnie. The conflict for South Point currently is providing adequate housing for poor students whilst the demand for student accommodation continues to rise and push up prices. As accommodation costs rise, poorer students will increasingly find themselves in tough competition with those who can afford to pay for the cost of accommodation.

Pieter Bezuidenhout, a consultant at Seeff properties, estimates that student accommodation prices in Pretoria’s Hatfield can range from R2 800 to R4 500 per month. The reason behind the rising price increases, Bezuidenhout argues, is because prime space held by property companies catering to students is in high demand. Young working people are also competing for this accommodation because of its easy access to Gautrain routes.

South Point’s largest presence is in the Braamfontein student hub which provides quick access to transport services such as the Rea Via Bus Rapid Transit System, the Gautrain bus routes and taxi ranks within walking distances. The potential for catering to young working people is also growing says Minnie, but South Point currently only has one building catering for young working adults. The Department of Higher Education’s Review of Accommodation Handbook in 2012 revealed that the University of Johannesburg, Wits and UCT have limited land for development and that private public partnerships would be the only solution.

According to the ministerial handbook review the majority of student growth in the future is expected to come from poorer students. Private student accommodation property companies like South Point are one of the few that provides affordable housing for students. Universities alone cannot meet the rising demand for student accommodation. Robert Sherman, head of campus housing and residence at Wits University, expressed a similar view when he stated that Wits aims to cater for only 35% of its student populace.
Students who cannot keep up with costs will be forced to live further away from universities, depend on other transport means to get onto campus or seek alternative income to pay for the shortfall, Bezuidenhout said. Minnie argues that because of the important role that private accommodation plays, special dispensation needs to be considered for the sector because universities alone cannot provide accommodation for all its students.

Student Insurance: a first for SA?

Economic trends

Author: Kentse Radebe -

16 January 2013 08:04

Student insurance: a first for SA?

Insurance, ‘medical’ for only R99 a month, comment from Aengus.

JOHANNESBURG - 4sho smart student insurance is offering to insure laptops and cell phones for only R99 a month. Conceptualised in 2012, 4sho smart student insurance is still in the pilot phase and should be launched this year. FirstStay insurance brokers believes there is a gap in the student market, and as the first company to launch an affordable student insurance product in South Africa, it believes that there is a lot of opportunity.

4sho smart student insurance is targeted at students who live in private accommodation and are either under-insured or not insured at all. Caj van Zyl, chairman of FirstStay Insurance Brokers, says that in their research it was found that a majority of students who stay in private accommodation are on the National Student Financial Aid Scheme (Nsfas).

Nsfas provides funding in the form of loans to tertiary students who cannot afford to pay for their fees. Partnering with other service providers, 4sho provides other benefits that would be useful to students living in private accommodation such as telephonic legal advice. Medical emergency services include telephonic advice, ambulance services, access to a health advisor as well as an HIV protection treatment service if a student has been raped. The HIV treatment service allows students to have 24-hour access to over-the-phone trauma counselling, consultations with a GP, blood tests, a 30-day starter pack of antiretroviral medication, 7-day STI medication and pregnancy prevention medication.

The 4sho student policy is underwritten by Santam. Patience Baloyi, affinity markets accounts manager at Santam, says that student insurance is a largely untapped market. As such with no specific product tailored for them, according to van Zyl, this often leaves students with little recourse. Insurance education in South Africa is also low, therefore targeting students in university introduces them to the concept of insurance from an early age, Baloyi says.

The 4sho student policy insures laptops up to the value of R3 500 and cell phones up to the value of R1 000. Van Zyl says that this is because their research indicates that students who are on Nsfas do not own laptops or cell phones over the price of R4 000 or R1 000 respectively. The excess payable is R350 on a first claim, a minimum of R500 on a second claim and R750 if it is a third claim.

Baloyi says that providing a product at an affordable price takes looking at student risk as well as affordability. The 4sho smart student insurance does not provide comprehensive cover but it does allow students to be able to deal with lost, stolen or damaged goods. Van Zyl also highlights that FirstStay has other products targeted at assets that are of higher value.

Asked why the company partnered with 4sho Brett Nadel, Group Operations Director at Aengus, says it’s important for students to start taking responsibility for their property now that they are on their own. “We do not force it on anyone, but the price point should make it quite attractive to them.”

Regarding benefits he said should students suffer a loss of or damage to their property, they will now have recourse to recover the cost. As to whether or not it will take off, he says it’s difficult to tell. “As I said, we do not force it on anyone.”

There are a number of road shows that FirstStay has already undertaken in order to attract students attention, says Van Zyl. The impact of the product will only be known once it is servicing a number of clients. This, Baloyi says, will also allow them to better understand the student insurance market and tailor their products to suit students’ needs.

FirstStay insurance hopes to have 200 000 students signed onto the policy in 2013. Students can apply for the policy through a call centre, Facebook as well as online.