#AskaUKPropertyExpert – Why student property can rarely ever be a bubble
Hi, Can you explain the concept of an asset class experiencing a bubble or being overvalued? Based on your last article, the UK student property market seems to be a good asset class to invest in. I take it you don’t believe the UK student property market is overvalued? – Kieran
Hi Kieran, Blue chip dividend paying income shares are deemed to be overpriced. As everyone is seeking income investors have paid higher prices for these shares and yields have contracted. Shares like Reckitt Benckiser and Unilever are trading way above their long-term average price/earning ratios. Is this a bubble? Probably not.
These are great companies. But it does mean that they are overpriced and buying in now would be foolish for yields of between 2.2% -3%, when you can purchase student property with good fundamentals that fetch an annual yield of 8% and above.
The price of student property is dictated by the yield that can be achieved, which is generally aligned with inflation.
Individuals could invest in a student pod that costs £50,000 and offers a yield of £5,000 or 10% per annum. Obviously in the future if they decided they wanted to sell that unit at a profit for £55,000 yet the rental yield has not gone up, future investors would only be achieving a yield of 9%, which makes the investment less attractive overall, leaving it harder to sell.
Student property in sought-after areas should be experiencing increases in rent, ensuring that investors can advertise their unit at a higher price whilst it manages to attain the same yield, making the investment as attractive as it was originally. If rents increase and the yield is now £5,500 per annum, units can be sold on for £55,000 still a 10% yield, thus the investment retains its original appeal.
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Who is Arran Kerkvliet?
One Touch Property has been helping people invest in UK property for the past 8 years. Arran Kerkvliet, the investment director, is originally from South Africa and has a degree in Economics and property valuation. He is keen to share some of the common things to look out for before investing in UK property. His company sources a wide range of property including student accommodation investments, high yield property such as hotel rooms and buy-to-let investments for people looking for income producing investments and diversity to their property portfolio.