Student accommodation yet to be an assest class in SA
SA has seen a huge spurt in purpose-built student accommodation in recent years, still we’re far behind the developed world in terms of supply and using it as an asset class.
According to a 2016 paper by global financial and professional services firm JLL, called “Student housing: a new asset class in Sub Saharan Africa” – the student housing market in the region is still in its infancy. In fact, JLL reports, it’s considered to be “around 15 to 25 years behind mature markets in terms of providing purpose-built, high-quality student housing”.
In turn, the department of higher education and training estimates there is a shortfall of approximately 250,000 beds in the country, which increases threefold if one includes the Technical and Vocational Training Colleges. And with government’s intention to increase tertiary student enrollments by 2030 to 1,600,000, you can expect an almost doubling of the need for student accommodation in the next decade.
So, what does this mean for an investor? With SA clearly miles behind the more matured markets, it is believed that the addressable market value of the opportunity is between R75bn and R125bn and growing at 5% per annum.
Underlining this value opportunity is the fact that five of the top key university cities in Africa are in SA – Johannesburg, Pretoria, Durban, Cape Town and Bloemfontein. Add to this, our fast-growing middle class, rapid urbanisation and an influx of foreign students feeding brisk demand for purpose built accommodation in a low supply environment.
The result: positive and in some cases double digit yields. Another positive is the turnover rates of student tenants, which means a consistently high occupancy rate at market-related rates. Several global companies are listed, including American Campus Communities, Empiric Student Property Fund, Unite Student Accommodation Fund, and Siox in Belgium.
In SA, no such direct listings have happened yet, but there is good news for local investors. The Initial Public Offering of Inkunzi Student Accommodation Fund Ithubalethu has been approved and launched on December 14 2018. The company established last year, aims to give retail investors and small family offices direct access to student housing opportunities in the country.
Much like what MTN Zakhele did, ISAF Ithubalethu has been setup to afford “the man in the street” an opportunity to participate in a formal capital raise. The investment will start from as little as R5,000 per investor and will look to deliver 10% per annum on investments. The proceeds of the IPO will be deployed in investments linked directly, or indirectly, to purpose-built student accommodation facilities.
For now, due to a 25% drop in real estate assets on the JSE, the company will only consider listing on a smaller exchange to provide liquidity to investors seeking to buy in or trade out of the investment.
● Nkomo, a regular Money columnist and director of Inkunzi Wealth Group, is the founder of Inkunzi Student Accommodation Fund.