Time to capitalise on student housing investment

Tuesday, August 4th, 2020 00:00 |
Housing project. Photo/Courtesy

The Covid-19 pandemic has put into sharp focus the expanded skill set now necessary for real estate success. 

To reach fruition, real estate projects now require advanced financial acumen and support as illustrated by Kenya’s innovative venture into the student housing market earlier on in the year.

Student housing has emerged as one of the strongest investment cases in East African real estate over the last two years.

Kenya’s Ministry of Education shows 919,400 students were last year enrolled at the country’s 67 universities and vocational colleges.

Yet student housing provided by universities stands at approximately 200,000 units countrywide, serving just 22.6 per cent of the student population, while 10 per cent commute from their homes.

The underserved gap in student housing is severe in Nairobi, which hosts majority of the country’s public and private universities, and which accounts for 43.1 per cent of the country’s total student enrolment.

For developers moving to serve this missing segment, the yields are among the strongest currently available in real estate, with student accommodation normally offering individual rooms around shared facilities, and thus generating multiple rental streams per shared unit.

The result is a yield of around seven per cent a year, compared with around five per cent for normal residential accommodation.

This has seen multiple private investors enter into the market segment, among them Acorn Group, Questworks, Century Developments Ltd/Kuramo and the Kenya Defence Forces Old Comrades Association (Defoca), who cumulatively plan to deliver 60,800 student units in the Nairobi Metropolitan Area over the next five years. 

With most of this accommodation options still in the pre-development phase, the timing of the current university closures has, in some ways, been relatively fortuitous for the developers, coming early in the revenue curve.

However, for more than 2,000 completed units, the annual return is expected to take a hit as universities closed abruptly in March with reopening dates scheduled for January 2021.

Ongoing developments have also slowed down due to the supply chain disruptions and public transport restrictions.

Of course, student numbers may be suppressed by the fall-out from the current pandemic, as newly jobless or income-impaired parents can no longer afford fees, as the government’s funds for HELB loans may become cramped, and as the universities, too, make changes to cope with dropped income from this academic year.

However, ultimately, the shortfall in student accommodation is so large, that the number of accommodated students is unlikely to drop to just one third of current levels.

Resilience in student housing investments in current times has required real financial cushions and financial agility; this holds true throughout the entire real estate industry.

Since real estate investments require large amounts of capital investment upfront against sales or rental yields, which rest on multiple elements of market conditions.

Moving forward, it will be critical for developers and operators to identify and prioritise the elements in student housing that are most important to students beyond physical school attendance while factoring in affordability as developers aim to provide the highest quality accommodation possible.

This is a challenge we welcome and aim discuss at 2020 annual regional investor conference, the East Africa Property Investment summit. —The author is a researcher for Africa at Knight Frank

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