Global property developers are circling in on the latest hot property market in Australia: student housing.
As the recent fall in the Australian dollar spurs foreign student numbers, companies from Dubai to China and South Africa are spending big on buying land or high-rise blocks that can be redeveloped to cater to students studying at universities.
Australia is attracting record student numbers as its economy tacks to service industries like education to pick up the slack created by the end of a decadelong mining boom. Student housing in Australia offers yields of 7% versus 5.75% in the US and 5% in the UK, according to Savills World Research. Property yields are calculated by dividing the annual rental income on a property by how much it cost to buy.
Education is now Australia’s third-largest export after commodities like iron ore and coal, generating about 18 billion Australian dollars (US$13.5 billion) in export revenue in the 2014-2015 fiscal year.
Dubai-headquartered property developer GSA recently made its first foray into Australian real estate — homing in on a city that the country’s central bank has warned is at risk of an apartment supply glut.
Earlier this month, GSA said it would buy privately-held Campus Estates, a student accommodation developer building a 350-bed student apartment in inner-city Melbourne, for A$21 million. The deal is the first step toward a target of 25,000 student beds in Australia for GSA, which started with just over 100 beds in the UK in 1991 and now operates in eight countries including China and Japan.
“Only one in 10 students that study in Australia have purpose-built housing,” said Simon Loveridge, GSA’s Asia Pacific Managing Director. “We see it being the next emerging student accommodation market.”
Australia has previously lagged behind other countries in building student housing. Analysts say that makes it a surer investment bet than residential property after the country’s central bank last year warned of a possible supply glut of apartments in inner-city Melbourne and Brisbane.
Overseas enrolments at Australian educational institutions hit 645,000 in 2015 — with more than a quarter of those students from China, government data show. The enrolments are up 25% from 2012 when the Australian dollar was near its peak and made it cheaper to study in the US and Britain.
Australia is the third-ranked destination globally for foreign students, after the US and Britain, according to the latest data from the Organization for Economic Cooperation and Development.
The UK has seen an influx of investment in student housing in recent years, with a record £5 billion (US$7.1 billion) of deals in 2015, according to real estate services company Jones Lang LaSalle Inc. The US student housing market is the world’s most mature, and some investors see it as fully priced, whereas Australian prices are relatively cheap and there is a shortfall of purpose-built student accommodation.
“Simply there aren’t enough student beds to meet the requirement of the student population in Australia at the moment,” said David Sinn, head of real estate for Australia and Asia at Herbert Smith Freehills.
In November, Industrial & Commercial Bank of China Ltd. made its largest ever investment in Australian real estate, pouring around A$100 million into a joint venture with UK student accommodation group Scape Student Living and Dutch pension fund APG Asset Management, which entered the market several months earlier. Mr. Sinn advised Scape on the property deals.
The venture has been buying up properties in the eastern Australian state capitals of Sydney, Brisbane and Melbourne. It is planning a 50-story tower near Melbourne’s RMIT University that will include rooftop sky gardens and collaborative workspaces where students can team up with businesses on start-up ideas. Scape Living’s Australian Executive Director Craig Carracher said the group intends to invest roughly A$1 billion over three years creating around 5,000 student beds in cities along Australia’s east coast.
“Five years ago, we tried to get international capital interested in Australia, and they wouldn’t pay attention,” Mr. Carracher said. “In the last 18 months, we’re having international funds and equity funds come to the market. It is a burgeoning market.”
Among the most active foreigners are several Singaporean investors. Just south of Brisbane’s inner-city district, clapboard homes are making way for high-rise towers set to house more than 1,600 students in a combined retail, office and apartment development being built by Singapore’s Wee Hur Holdings Ltd.
In 2014, Singapore sovereign-wealth fund GIC Pte. Ltd. joined with Macquarie Capital — a unit of Macquarie Group Ltd. — to buy a stake in Sydney-based student accommodation provider Iglu.
South African real-estate company Redefine Properties in February said it wants to move into student accommodation in Australia. Redefine Chief Executive Andrew Konig said the company is looking at investing with a local partner in a A$130 million project in Melbourne.
Redefine already has an exposure to the Australian commercial property market through its 25% stake in listed investment trust Cromwell Property Group, which owns office buildings in the country’s major cities. “We are excited about the Melbourne area, particularly when it comes to student accommodation,” Mr. Konig told investors after the release of the company’s half-year result.
Original Publish: http://www.businessspectator.com.au/