Is there genuine capital growth or is it… made up?

student investment capital growthJust before Christmas, we received an email from another student investment developer / sales agent and there were some claims on the email in relation to capital growth on student pod investments. Some of the claims were, putting it mildly, highly dubious and without basis.

We ran a recent poll amongst some of our investors and decided to put the two together to make our position clear on the matter and what we believe is a more accurate reflection of the student investment market, especially when it comes to student pod investments and any associated capital growth.

Firstly, for there to be any capital growth in the student room or student pod sector, there needs to be (a) a genuine secondary market that can accommodate these types of products (b) an actual demand from independent and non-affiliated secondary buyers that is in existence.

As things stand, there is neither. This means that we can predict and estimate capital growth increases all day and night, but if the two conditions above are not met, then it is just a load of waffle and sales spiel. That’s the bottom line and we stand by it.

Do we think there will be growth on student investments?

Let’s be clear, when we say student pod investments, we mean the following:

What we are including What we don’t include
Student pod investments Student housing investment
Student room investments Student HMO investments
Student studio investments
Postgraduate student room investments

In reference to the above table, by student HMO investment, we mean a house in multiple occupation i.e. a house which contains several rooms with several tenants that are not related.

So, let’s elaborate on why we include one type and not the other. Firstly, the obvious reason is that one is where an investor purchases a singular room in a purpose built hall of residence, possibly with a self contained kitchenette and/or bathroom; the other is not of this type and as part of your purchase has a separate kitchen and at least one separate bathroom. Another defining feature is the first group is not currently mortgage worthy according to any residential lending facility or buy-to-let lenders, whereas the second group does have a wide range of banks that will lend against it i.e. they are your regular houses that have a license to let to individuals.

Results of our student investment poll

As mentioned earlier, we ran a poll in late 2013 with our investor group, asking various questions. Our initial reasons for running this poll was to determine how we approach our future direction and to determine what our clients were interested in, their concerns and so on. The feedback we had was quite good and in total, we had 75 responses. Whilst this is not a definitive representation of the market, the responses are quite conclusive. We break down the three questions we asked and offer running commentary below each result.

The first question we asked was straightforward. It should be noted that the respondents were clients that have either purchased student investments or have expressed an interest at some point in the last 36 months.

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The responses show that 30 of them had purchased student investments from different developers and agents in the UK. 26 had not invested but had thought of doing so in the past and a further 19 had received marketing material but had discarded the idea of investing in student pods.

The second question was aimed at finding a reason behind their initial interest and what made them request more information in the last 36 months.

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It seems that the guaranteed rental income is a winner with a lot of investors and this has been expressed with the results of the poll. Over 37% cited this as a reason as to why they would invest in student investment schemes while a further 21% liked the complete management of the student investments.

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These results are quite revealing and to us, a little surprising. Whilst and rental investor should be prioritising the rent coming and having concerns to whom they rent out their units to, we are surprised to see that less than 1 in 4 had ‘not being able to sell’ as their major concern. In our eyes, the question of rental income should not be asked – it needs to be a given. If you are investing in something for a monthly or annual cash return, then that is what you should focus on when doing research. However, if it came to the crunch and you had to sell for whatever reason but were unable to do so, surely that is a bigger concern? Let’s put it like this: In 2013, over 6000 student investment rooms were being offered to the retail market. Most of these investors have bought in at £50,000+ per room with some paying upwards of £90,000 per room in towns and cities outside of the capital. Who is going to buy that from you and if you could sell, would there be any capital growth at all? As a test case, why don’t you put it online for sale using a Rightmove or Zoopla for example and see what response you get? We’ve tried for clients in the past and the result wasn’t pretty. We’ll probably be doing a post on this in the next few weeks.

What is interesting to note is that 17% of respondents would be worried that the investment they acquired off-plan would not be finished. This concern may have grown through the year as a number of unscrupulous scam student developers disappeared with investor capital in the Summer and Autumn of 2013 in Liverpool and Manchester.

Again, we want to reiterate that were are not against investing in student pods or student rooms per se, but we believe that it is not being made clear to investors that there is no current secondary market and clients that do invest in these rooms should be made aware of this. Even with the buyback policies supposedly in place, this is an artificially created exit which is out of your control. A legitimate, genuine secondary market has not come about despite student pod investments coming onto the market since 2009 – Five years on.

We do hope things change and a high street lender will offer lending, but we just can’t see this market losing its inflexible and pretty much non-existent exit strategies. So for that reason, coupled in with the comments above, we really ask that investors excercise caution before they invest in student pods. If you are being sold these units with the capital growth being factored in, then you really need to ask for concrete evidence for this.

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