Newcastle Student room investments – Next Generation Student Living

We are very happy to announce that we have had discussions with a leading and reputable developer with view to offering Newcastle student room investments and student studio investments to our clients. These student pod investments are located within a 10 minute walk to the in the demand world class universities in the form of Newcastle University and The University of Northumbria. We’ve had a couple of meetings with the developer and the due diligence we’ve done on the entire operation has come back positive.

Our clients understand that we do not market or promote any student development without passing a rigorous and rigid set of guidelines as we are very stringent about which schemes we work on. We are approached every other week by developers and asset brokers, but we only select the right scheme where all the angles are covered. We have yet to fully commit to this development, but we’re happy to say that it all looks positive as we approach the end of 2012. By the first few weeks of 2013, we’ll be able to make a full statement on if and how we proceed with investing in the Newcastle Student market.

So far, we’ve been given some tentative details of the student development which we outline below. Please note that this information is subject to change at any time and we will only offer final details as and when they are confirmed to us by the developer:

• Student rooms from £35,000; Studios from £39,000.
• Non Status Financing at 50% LTV.
• Projected net yields of 9%.
• Development to be completed for July 2014.
• Accommodation is 10 minutes walk to University of Newcastle.
• All monies deposited and invested are insured.
• An exit strategy on year 3 (or year 4)

Investing in Newcastle Student Pods and Newcastle Student Rooms

Should you consider investing in student pods in Newcastle? Everytime we speak to or contact clients, we try and make it clear that student pods and student room investments are for a certain type of investor. We do not believe they are for everyone and you need to fit a certain ‘type’ to gain the full benefit of investing in such a market. For example, we have clients that only buy properties that we terms as ‘wrecks’ i.e. they will need gutting out internally. This client wants to get her hands dirty and enjoys the daily attendance and project management required to get the property into a condition which will attract first-time and next time buyers. To cut to the point, we will certainly not be contacting her to see if she’d like to invest in high yielding student pods in Newcastle or hands off student room investments as it does not fit her profile.

So who does this work for? Well, you have obviously come to this page and you are still reading this as you realise there is a major shortage of student accommodation in Newcastle. There is a genuine demand for student rooms in Newcastle and you would like to benefit from this. This type of investment in this particular city is for investors that understand:

• Newcastle is one of the biggest cities in the UK
• One in Six people in Newcastle is a student (~42,000)
• Newcastle has two top universities in the UK
• There is a shortage of high quality student rooms in Newcastle
• Want to invest in Newcastle, but have very little time to come to this part of the world
• This type of investment is suited to clients that want to have something completely managed

In short, this particular investment is for clients that want to  own property in Newcastle without the hassles that come with owning rental investments. The client is happy to have a long term investment which brings in good returns on a regular basis.

Addressing the Shortage of Student Accommodation in Newcastle

Is there actually a shortage in Newcastle though? According to a Savills report in student accommodation in November 2011, Newcastle is one of the areas in England where investors should be buying real estate with view to letting them to students. As a contrast, the same report advised potential investors to avoid Sunderland student pods and if anything, should be looking to exit the Sunderland student market.

It is difficult to accurately determine the current shortfall in purpose built student accommodation. Only approximate figures can be estimated as figures are based on a number of complex matters, including propensity to live in Halls; number of ‘priority students’ which need to be accommodated in purpose built accommodation; and the quality and price of accommodation. There is some evidence of unmet demand in the number of unsuccessful applications for accommodation but the Universities both suggest that supply of new quality bed spaces can create demand and therefore unsuccessful applications provide limited information on the actual shortfall. Development has not kept pace with growth therefore comparatively there is a smaller proportion of the student population in purpose built halls than in previous years. Some key facts include:

• The University of Newcastle house around 23% of their total full time students whilst Northumbria house 19% of their full time students.
• The University of Newcastle and Northumbria University respectively house around 79% and 41% of new home undergraduates.
• Less than 2% of returning (i.e. non-first year) undergraduate students are currently accommodated in University residences.
• Only half of new international students at Northumbria University are in residences and around half of all international students at Newcastle University are in residences.

Student Pod Mortgages: Non-status financing for all investors

One of the other key reasons why we are happy to provisionally offer this up and coming scheme is the availability of financing, and at favourable rates too. The developer is prepared to back the project on a non-status finance at 50% LTV mortgages, spread over a 15 year repayment scheme with interest fixed at 3%. This means that to buy a Student studio at £39,000, the client would need to put in £19,500, with the remaining £19,500 on a 15 year fixed interest repayment plan.

Admittedly, we tried to negotiate a higher loan-to-value, but even at 50% LTV to all investors, regardless of status or nationality, is still very good and we have discussed the difficulty in obtaining student pod mortgages on a previous post.

Student room investments – A well defined exit strategy on Year 3

Finally, a major contributing factor in Aston Eaves offering these investments to our client is the proposed exit that the development offers. As part of the contractual process, the investor must agree to the developer being able to buy-back the student studio at a fixed price (which is yet to be determined and agreed upon) on year 3 or year 4. The reasons behind this will only be made clear to our investors, but we’ve been through the proposed idea and we wholly support the exit strategy proposed by developer.

All we need to do now is iron out the finer details of the project and make sure our due diligence on the entire project stacks up. Once this has been finalised, we will be in touch with all clients that have expressed an interest in investing in Newcastle student room investments. Please register your details by sending us an email.