Which is a better investment: Student vs Residential Property?
UK property has always been one of the most popular asset classes when it comes to investing, as it is a tangible product that the investor can have full control over, and this popularity has only increased in recent years as the property market continues to perform extremely well.
With more and more people looking to invest in property, it’s important to know what type of property you want to invest in and what the pros and cons of each type are. We specialise in residential and student property here at Knight Knox, and with this in mind we thought we would break down the differences and benefits of student vs residential property investment.
- Residential property investment
- The purchase of a residential property with the intention of renting it out to the Private Rented Sector (PRS) instead of living there as an owner-occupier.
- Student accommodation investment
The purchase of a student house, room or pod with the intention of renting the property out to a student.
Residential property in the UK offers one of the finest avenues available when it comes to investing. For the last few years, the UK property market has gone from strength to strength and continues to grow regardless of any uncertainty or challenges it has had to face. According to the Office for National Statistics, UK average house prices increased by 10.2% over the year to October 2021. This continued growth has made it difficult for first time buyers to purchase a home, thus increasing the demand for residential rental property. Here are just a few advantages of investing in residential property in the UK:
The number of tenanted households in the private rented sector in the UK is estimated to be around 4.5 million, massively increasing in the last 15 years from 2.8 million in 2007. There are more people renting than ever before, with a change in lifestyle and priorities seeing a larger portion of the population renting by choice. This, paired with the increasing difficulty to get on the housing ladder, has resulted in an all-time high in demand for rental properties.
Whilst not as high as rental yields offered by student property, the increase in demand for residential rental properties has resulted in an increase in rental yields across the UK which is set to continue in the coming years. JLL have forecast that in the next five years, average rental yields will increase by a cumulative 15.4% across the UK, with places such as Manchester, Liverpool and Leeds in particular expected to see substantial growth.
In addition to rental income, residential property also offers the opportunity to make money through capital gains. JLL have predicted that house prices across the UK will increase by over 27% in the next five years – particularly in the North West, Yorkshire and the Humber and East Midlands – offering the opportunity to resell a residential property for a profit in years to come.
In 2021, over 749,500 people applied through UCAS to study an undergraduate course in the UK, with 562,060 people accepted according to the UCAS 2021 End of Cycle report. In the same report it was found that over 140,000 of these applicants were foreign applicants. This substantial influx of international students has seen purpose-built student accommodation become one of the UK’s premier asset classes in the buy to let market. Here are some of the advantages to investing in student property:
A big advantage that investing in student property has over residential is that with student property, there is predominantly higher yields on offer. According to Paragon bank, student properties across the country deliver an average gross yield of between 6.15% and 6.6% – higher than the residential range of 5.43% to 5.6%. This difference has been clear to see over the last five years, with student property yields out-performing residential yields by an impressive 4.6%.
Lower entry price
As well as higher yields, student accommodation investent also offers significantly lower entry points when compared to the likes of residential or commercial property. Student properties are more than often smaller than a standard residential apartment which usually results in a lower average price. This lower price factors into the higher yields we previously mentioned, resulting in a much better ROI through rental income over a shorter period of time.
Less frequent void periods
Given the immense amount of demand for privately owned student accommodation, void periods with his type of investment are a lot less likely to occur. Demand is completely outstripping supply in the UK, with there now being 1.4 students for every purpose-built student bed available. This demand will only result in fewer vacancies for purpose-built student accommodation.