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Student letting big business – even better if let to parents

Mill Junction in Johannesburg offers easy access to Wits University, UJ and a host of colleges in the city.

Parents signing or co-signing leases for student accommodation are almost 20% higher in better standing than students signing alone. This is according to Tenant Profile Network (TPN) Credit Bureau, which ran its own in-depth analysis on student accommodation, to discover what a big business student letting is.

What it found was that there are over one million students registered at private and public universities in South Africa. This is according to the Department of Higher Education and Training’s Statistical Report published in 2014. Further, at both public and private universities, student enrolment had increased from 868,178 in 2008 to 1,050,851 in 2012.

With student numbers rising steadily, so too is the need for student housing. A Ministerial Review Report on Student Accommodation confirmed that less than 10% of first-year students are accommodated in university residences. Moreover “around a quarter of all infrastructure, fixtures, fittings and dining-hall faculties assessed by the universities concerned are in an unsatisfactory or poor condition”.

TPN MD, Michelle Dickens, says, “South African tenants generally take their rental payment commitment quite seriously, with 84% in good standing with their landlords. Student accommodation can be divided into two camps: Camp 1 where the parent is the tenant and the student the occupant; and Camp 2 where the student is the tenant and occupant.”

TPN’s student accommodation research clearly indicates landlords are better protected when a parent is involved in signing or co-signing the lease. “Conventionally, the age of residential tenants peaks at 30, as tenants start moving into home ownership. However the numbers change for student accommodation where the age of a student renting property peaks at 21 and the parent peaks at 53. It seems age does play a role, as TPN research on payment behavioural analysis shows that 94% of parents paying for student accommodation are in good standing – compared to a substantially lower average for students at 77%, versus the national average being 84%.”

It further found that the majority of student leases (59%) are concluded in January for a 12-month period, but that student drop-out plays an important part in determining whether the lease will run its full terms.

A parent-signed lease was found to last 11.5-months on average, versus a student-signed lease only lasting 9.5-months. This indicated higher vacancy rates for student-signed leases, as negotiating replacement tenant leases in October was very unlikely.

When it comes to putting a price tag on student accommodation, TPN found parents have bigger purses with an average rental of R4,589 for a parent-sponsored unit, while students are more cash conscious with an average rental of R3,021.

“Further perspective is obtained by looking at the TPN-FNB national gross residential property yield. In the first quarter of 2015, yield increased to 8.77%,” says Dickens. “More specifically, with regard to sectional titles: one-bedroom properties showed the highest yield at 9.9%; two-bedrooms, 9.29%; and less than two bedrooms, 8.5%. In the case of full-title deeds: less than three bedrooms yielded 7.93%; three bedrooms, 8.01%, and more than three bedrooms, 7.11%.

“There is definitely an increasing demand for quality student housing,” Dickens says. “A landlord who is willing to invest in this sector can expect a growing number of potential tenants with the National Student Financial Aid Scheme providing ‘loans and bursaries to students at all 25 public universities and 50 public TVET colleges throughout the country’. With this funding having grown from R441m in 1999 to R8,5b in 2013, student letting is set to be very big business indeed.”

* According to the National Development Plan for 2030, the number of students could increase to 1.6 million. This would mean a massive 78% more students.

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