Last year was a tough one for South African investors. They had to contend with an economy that narrowly avoided being downgraded to junk status on two occasions, prompted by rising unemployment numbers and political scandal. They also had to watch as their assets bore the brunt of wild volatility experienced by markets in the wake of global currency devaluations, triggered by landmark events such as Donald Trump’ s inauguration as US President.
Money flowed out of South Africa in 2016 at its fastest pace since the end of apartheid and, with more economic and political uncertainty expected in 2017, many more investors are likely to explore their investment options overseas.
With real estate widely regarded as a safe-haven during times of uncertainty, there’ s one international property market international investors turn to more than most – and one product that’ s currently driving returns faster than any other.
The strength and resilience of UK property While equities and bonds fluctuate on political and economic concerns, real estate is traditionally able to weather the storm. During these times, greater interest and activity should be focused on property markets with strong and resilient fundamentals. This is undoubtedly why UK property is an investment favourite.
Britain is deep in the thick of a housing shortage. An additional 300,000 new houses are needed each year to keep pace with demand from the country’ s rising population. This undersupply is not impacted by external political and economic developments. International investors are also reassured by the country’ s renowned legislative framework, which underpins the security of its real estate sector, while UK law has an established reputation as a primary centre for international and commercial litigation and arbitration.
British real estate has long been an investment favourite for global investors- and there’ s one sector( in particular) currently outperforming all others. Both yields and prices are currently surging in the UK property market. But it’ s purpose-built student accommodation that stands out as the country’ s number one investment.
UK student property – the £ 45 billion opportunity
The UK is renowned for the quality of its universities around the world. 438,015 international students made up the total 2.28 million students that studied at UK higher education institutions in 2015 / 16.
With 16 institutions ranked inside the top 100 universities in the world, the prestige of a British education is a premium many students around the world are prepared to pay for.
Yet the standard of traditional university accommodation is widely viewed as largely inadequate or of poor quality. It’ s this outdated supply, combined with the rising demand for purpose-built student accommodation amongst today’ s students, that’ s made student property the UK’ s highest-performing asset class.
The sector has already grown by 37 % since 2014, and Knight Frank believes the UK’ s purpose-built student property market will reach a total value of £ 45.8bn by September 2017. But crucial for investors is that student property generates 50 % higher yields than residential property units. Average rents in the sector are also expected to rise by a further 2.5 % in 2017. Such is the continued undersupply of quality accommodation in the UK.
A recession-proved asset Following the 2008 global recession, Savills described the UK’ s student property market as“ perhaps one of the most resilient investment sectors”, due to the“ robust performance” it demonstrated.
Knight Frank also added that, due to the underlying appetite for a British education, the market“ demonstrated its resilience through both the recession and the introduction of( increased) tuition fees”.
It means that no matter what uncertainty 2017 brings, UK purpose-built student accommodation is well placed to demonstrate the same resilience its showed in similar economic downturns over the last 10 years.
A currency window of opportunity Returns from UK property also come in pounds, a currency with a status as a good hedge against the South African rand. But June’ s vote for Brexit caused the pound to fall to a 30-year low – and helped the rand to appreciate 35 % in value against sterling.
This creates an immediate opportunity for South Africans to acquire British assets with greater affordability. Widely regarded as one of the strongest currencies in the world, don’ t expect the pound’ s loss in value to be permanent, however. This means you’ ll need to act sooner rather than later to take advantage of this particular opportunity.
RESOURCES
Select Property Group
MARCH 2017 SA Real Estate Investor 49