Real Estate Investment Trust diversifies the portfolio thus lowering the risks

2017年04月21日

Student Accommodations – an opportunity for investment in UK

 
Student Accommodations – an opportunity for investment in UK
 

Recently, the British Sterling Pound has dropped to nearly a 30-year low. Many Hong-Kongers have become interested in investing in Britain. Are there any choices other than forex and private property markets?
A friend of mine has been considering investing in university student accommodations. The main providers of student accommodations are generally state-run services, private agencies, or the university itself. University accommodations tend to be more run-down, offering single-person bedrooms or suites. The rent is usually inclusive of supply of water, electricity, and internet services, etc. Private accommodations, on the other hand, tend to be of higher quality. As the rental differences are marginal, international students with greater expectations for living environment do prefer private accommodations. Moreover, the demand is outgrowing the supply of student accommodations. There are more than 35,000 students in British universities, but only 5,000 beds are available in accommodations. For many property developers, this disparity represents an attractive opportunity for business.

Low capital requirements for student accommodation investments

My friend is considering investing specifically in private student accommodations. These are well-furnished open-plan apartments, about 18 to 25 sq m in size. These apartments each cost HK$600,000 and up. Compared to Hong Kong properties, which are easily priced from HK$3,000,000 to HK$4,000,000, these British apartments are quite affordable even for the average citizen. In addition, British developers offer 3 to 5 years of guaranteed rental return and estate management services. There are no requirements for stamp duty or VAT. Hong Kong investors may apply for a mortgage loan of up to 50% of the property’s value. In other words, one can invest in a property in UK with a budget as low as HK$300,000. It certainly sounds attractive, but are there other factors to watch out for? 
Prior to making any investments, one must always consider both the returns and risks. Potential risk factors include fluctuations in currency exchange rates and political climate, etc. When investing in student accommodations, there is especially a need for effective estate management in the areas of rent, tenancy agreements, and maintenance – more so than in managing private residences. As such, management expenses for student accommodations are costlier, which also affects the corresponding investment returns. If one wishes to resell the property someday, they must first discern the related procedures and fees.

Invest in related funds to avoid hassles 

Aside from managing student accommodation apartments, one may also wish to purchase and convert residential properties into shared housing for students. What other factors would one need to consider? Unlike private properties, running student accommodations requires relevant licenses, and some regional offices have ceased issuing new licenses for this type of accommodation. Before making the investment, one must ascertain that the lease they intend to offer is eligible for registering the House for Multiple Occupancy (HMO) license. This license allows multiple family units to share tenancy within the same property; in the case of student accommodations, it allows for a “Share House” between student tenants. Eligibility for the license rests on whether the property complies with fire safety and insurance regulations. If all regulations are appropriately observed, the license can be renewed upon expiry.
For those interested in investing in student accommodations, they may also consider investing in related property funds or REITs. Companies offering such funds are knowledgeable about the local market and the management process, thus saving the private investors’ time and money otherwise inevitable in hands-on management. Property funds offer a competitive advantage in investment capital. They can collaborate with local real estate companies to set up various student accommodations for different market segments to diversify the portfolio, thus lowering the risks. The trading of funds is convenient, and the process is highly transparent, so it can be a good option for investment.

 

Disclaimer
The above information is provided for reference only, and does not constitute any investment advice or offer. You shall not make any investment decision relying on this article. Investments involve risks, and fund prices may go down as well as up; past performance is not indicative of future performance.
The author has endeavoured to ensure the accuracy and reliability of all information (including data) provided, but the information shall not be interpreted as a guideline for consumers. The author and Convoy accepts no responsibility or liability for any loss or damages suffered by any person due to any inaccuracy or omission in respect of any information provided in the article. Different plans have respective terms and conditions which are stated by different product providers. Please refer to the respective principal brochures for detailed terms and conditions.

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