How to successfully invest in Stellenbosch Student Accommodation - Feb 2019
The decision-making process of property buyers considering an investment into the residential property market in 2019 is influenced by significant economic and political uncertainty - not only in South Africa, but also across much of the world. Whilst a more conservative approach to property investment decisions is certainly warranted, current market conditions in parts of the Western Cape also present unique opportunities for potential buyers. With the right advice and guidance, the Cape Winelands continues to offer a stable outlook for savvy investors, in particular, the market for student accommodation.
The Western Cape property market enters a ‘cool down’ period
The Western Cape property market is experiencing an overall ‘cool-down’ period after years of exponential growth. According to FNB property sector strategist, John Loos, a key additional constraint on the national house price growth has been the ‘normalisation’ of house price growth in the Western Cape. Other statistics also indicate slower inbound migration from inland provinces, in particular from homeowners seeking a primary residence. However, in certain residential nodes, this trend is impacting the rental market in different ways.
Popular residential nodes in the Western Cape (and Cape Town in particular) that received significant attention from developers in recent years now sit with an over-supply of vacant rental properties without demand to match. The opposite is true for the winelands market, which continues to receive a steady demand from a diverse range of tenants. House price inflation continues to be aggravated by stock shortages in these residential areas.
Student accommodation and stock shortages ensure consistent demand
The Stellenbosch property market presents an attractive investment opportunity to parents of students or savvy investors of student accommodation. Whilst supply for premium student accommodation might be in constant short supply, there are various factors influencing a successful investment. Barbara Kriel and Almari Arangies, property consultants at Fine and Country Stellenbosch, state that parents or investors need to be even more discerning when pursuing student accommodation as investment: “variables such as proximity to main campus and amenities, security and property size has a significant influence on long-term returns”.
Parents should be careful to over-capitalize on student accommodation
Parents often assume they will be able to sell their student accommodation properties upon completion of their child’s studies on an average of 3-4 years with a good return. However, parents often over-capitalize on the apartment or invest in a property with high levies that all chip-away at investment growth. We have often seen parents break-even after 4 years, with the perception that the burgeoning Stellenbosch market will automatically ‘guarantee’ a good return over the short term. Naturally there is the consideration that ongoing maintenance of student properties are generally higher compared to most residential dwellings, especially those with premium fits and finishes. It is therefore important to approach premium student accommodation with a longer-term perspective, with better returns on 8-10 years.
Investors should buy in bulk to get the best out of their buy-to-let student rental portfolio
Investors of buy-to-let student accommodation will generally get the best return on a 2-bedroom property in an excellent location with a good managing agent or body corporate. The latter is imperative, as higher maintenance associated with student accommodation needs to be managed proactively and efficiently by a good resource. Ideally, a portfolio of multiple student properties will better mitigate risk with reasonable levies with new or premium fits and finishes. Whereas most investors believe that modest fits and finishes are sufficient for the needs of student tenants, consider that a marble countertop is a better long-term and durable approach compared to its melamine counterparts.