January 5, 2016

Student Property as a Buy-to-Let Substitute

The government has announced a comprehensive set of measures, due to roll out over the next few years and be fully in force by 2020, that could seriously impact the viability of buy-to-let for many current and would-be investors. Many are therefore seeking an alternative, and purpose-built student housing could be a way to invest profitably in property while avoiding some – though not all – of the governments changes in legislation.
At first look, this niche property sector certainly seems an attractive prospect. The returns can be very strong, and quite frequently grab headlines for significantly outperforming other property assets, and when buying from the developer as part of a new project there is often a guarantee of good returns for a period of several years – all from an investment class that is almost always fully-managed.
Purchase prices can also be attractive, and student rooms are often far lower than the cost of buying a home or regular residential flat. This allows for smaller levels of investment, and could prove important as a way to minimise the impact of upcoming tax changes. One of the key changes which could drain the profitability of mainstream buy-to-let is the loss of tax relief on mortgage repayments. Lower-priced student rooms may avert the need for credit of any kind, or allow for a lower-value deal with lower repayments for the same capital outlay.
Student property also looks like an attractive market to invest in. As well as outperforming mainstream properties for some time now, indications are that good-quality purpose-built student property is likely to keep doing well for some time. Demand for student beds in a great many of the UK's key markets is significantly greater than supply. Student numbers are rising yearly and show no sign of abating, which is making it hard for this supply-demand gap to close. International students in the UK are on the rise, and these represent a key market for purpose-built student apartments, and the popularity of dedicated student housing is also continuing to grow with the domestic crowd.
This is not to say there are no pitfalls to be wary of, however, and as with any investment it is important to consider the risks involved as well. Even with low supply, student developments of poor quality or in weak locations don't necessarily get filled to capacity. One of the key attractions is the kind of guaranteed return deal that is common in this sector and this is indeed a big draw, but it is important to choose a reliable developer with an established track record to ensure they will be able to follow through on their promise.
While student property is more popular as an income investment than a source of capital growth, it is important to consider the risk to the money tied up in the property, though the extremely positive forecasts surrounding student property are reassuring for a well-chosen investment. Furthermore, while new units are proving very popular with investors, there is still a very limited resale market so this could make exiting and regaining access to your capital more difficult.
Lastly, while it could potentially be a way to soften or bypass certain aspects of the new government measures, key considerations such as the rise in stamp duty and cuts to income tax relief will still apply to student property landlords.

For more information about student property investments, please contact Hopwood House.