Pros and Cons of Investing in Student Accommodation

student accommodation

Demand for student accommodation in Australia has grown in recent years due to a quality education system and an increase in international students. According to the Pearson Index, Australia ranks in the top 20 countries that offer the best schools. As reported by The Australian Financial Review earlier this year, export revenue from international students soared to $20 billion making education Australia’s third-largest export.

The increase demand has seen new student accommodation developments being built near universities or within university precincts. But is buying into student accommodation a good investment? We take a look at the pros and cons.

Pros

Strong Rental Demand

According to data from the Australian Bureau of Statistics, there were approximately 929,000 students enrolled in higher education courses across Australia in 2011. This was an increase of 29.21% from 719,000 students in 2001. Of these students 33% were international students with the majority coming from China, England, India, Malaysia and New Zealand. The data also indicates that the most common reason given by higher education students for changing residencies is to be closer to education facilities.

High Rental Yield

A strong rental demand often leads to a high rental yield. For example, a one bedroom apartment near La Trobe University (30 minutes from the Melbourne CBD) is currently on the market for $325,000 – $340,000 with an estimated rent of $310 – $330. That’s a return of 4.96% to 5.05% with a low entry cost to invest.

Cons

Limited Capital Growth

Due to the lack of owner occupier appeal and very specific target demographic, student accommodation can be more difficult to sell resulting in limited capital growth.

High Turnover

As students complete their higher education course they will move on and find alternative living arrangements. Given the strong rental demand, finding new tenants shouldn’t be a problem but investors should be aware of any associated property management fees.

As with any property investment decision, it’s important to carefully weigh up the pros and cons against your long-term goals and current position.


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