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The insatiable demand for student accommodation in South Africa seen over many years should, in theory, be a boon for property developers.

Yet few industry players have tapped into this market by supplying rental units for students.

With over one million students registered at private and public universities in South Africa, according to 2014 figures by the Department of Higher Education and Training, opportunities for property investors are seemingly clear on the surface.

But on close inspection, investors are still on the fence about residential property investments and subsequently leasing units to students given the perceived risk of the market.

The prospects of dealing with delinquent tenants, rental arrears, high maintenance costs attached to properties and cumbersome legislations, which usually favour tenants, have been enough to discourage investors.

International Housing Solutions (IHS) MD Rob Wesselo said trying to convince institutional investors to invest in student accommodation is a hard sell, despite the market being heavily undersupplied.

“Student accommodation requires specific asset managers to run with the investment. It is very tough to get one of the typical institutions to invest in that area.

“There is plenty of research to show that residential is the one property class in South Africa where there is more demand than there is supply,” Wesselo said at the IPD South Africa Property Investment Conference held in Cape Town last week.

Another concern is that residential investments have delivered low yields for many years, which has spurred investors to bet on the commercial sector with sizeable yields.

IHS – a private equity firm focusing on the development of residential housing – has raised $US600 million (R7.7 billion) in the last six years for investments in affordable residential units. The group now owns about 8 000 rental units.

The investment community is warming up to student accommodation – a shift which has been three years in the making, Wesselo said. This is because residential fundamentals are starting to look attractive.

According to figures from credit bureau and bank TPN and FNB, the national gross residential yield for the first quarter of 2015 increased to 8.77%. On student accommodation, TPN’s research divided tenants in two groups; parents paying for student accommodation and students independently responsible for student accommodation.

TPN’s research showed that 94% of parents paying for student accommodation are in good standing (paying rent in a timeous manner) compared with 77% for students who paid for their own accommodation.

MD of TPN Michelle Dickens said the results of the research indicated that landlords are better protected when a parent is involved in signing or co-signing a lease. However, Dickens added that South African tenants generally took their rental payment commitment seriously “with 84% in good standing with their landlord”.

While private companies are no strangers to the student accommodation market, more companies listed on the JSE’s more than R600 billion real estate sector are getting in on the act. Up until recently, SA Corporate Real Estate Fund and Octodec Investments were considered to have sizable residential portfolios focusing on rental units. Rentals for units in Johannesburg and Pretoria CBD were pitched at the affordable housing market.

The JSE’s first residential-focused fund Indluplace Properties, which was listed by Arrowhead Properties, has joined the ranks of property companies with exposure to the housing sector.

Indluplace executive director Mark Kaplan recently told Moneyweb that the company is not focused largely on student accommodation, as it only makes about 14% of its residential portfolio located in Windsor, Pretoria, Hillbrow, Vanderbijlpark and more.

“We think student accommodation has got its space. It’s a good market, it’s becoming more competitive and we are seeing fewer opportunities. We don’t want it to become a big component of our residential portfolio,” Kaplan said.

Indluplace had to cancel its lease with Ruimsig based Monash University in May at its residential complex due to non-payment of rent where 333 apartments were used for student accommodation. It has since begun the process of reletting the apartment units.