The disequilibrium relating to the demand and supply of quality, affordable student accommodation has been extensively discussed in South Africa in recent years.
Current market figures indicate that there is a 200,000+ deficit in formalised student accommodation across the country.
Global student-housing transactions volumes have never been higher, which substantiates the growing investor appetite for the sector. Institutional interest shown in the student-housing product in developed markets shows the maturity and adoption of this real estate vehicle. The student housing vehicle has outperformed other commercial real estate sectors, delivering returns in the 11% to 15% range.
Currently, the South African market categorises student housing under the broader residential category. Accordingly, the data provides a broad overview of the student housing sector. Average residential property yields at the end of 2014 in South Africa were 7.5% for new purpose-built developments and 10% for the conversions of office space to purpose-built student accommodation, thanks in part to tax concessions and the utilisation of economies of scale.
There is, however, downward pressure on yields as a result of the increased number of deals taking place in the market. Despite yield compression, there is still a large appetite for funds offering investors with exposure to stable income-gathering housing portfolios in South Africa, especially funds that offer exposure to rental apartments in inner cities or close to universities.
If yields in low-income residential areas are examined (in which student housing is often located), the findings point to higher average yields (9.4% in 2015). Higher yields are demanded in lower-income areas to compensate landowners, among other things, for the risk associated with the so-called affordability cap that is prevalent in low-income areas.