According to real estate firm JLL, “demand for new purpose-built student accommodation across sub-Saharan Africa is set to exceed 500,000 beds over the next five years”. It looks like supplying this accommodation will largely be the remit of the private sector – it’s no secret that there are public sector budget constraints across Africa. Does this opportunity for the private sector make African student housing an attractive investment category (like it is in the UK and US)?
The private student housing sector was born in the US, in the ‘90s. Many big developers and operators put their student housing portfolios into REITs (Real Estate Investment Trusts) – companies that own or finance income-producing real estate. Alongside REITS, numerous investment vehicles were used to support student housing developments in the US. Accommodation fever soon spread across the Atlantic. Private UK companies began investing in city centre, purpose-built student housing in order to cater for a growing student’s population. According to JLL, there were £5.7 billion worth of UK private student housing transactions.
In comparison, Africa’s student housing market is “embryonic”. Philip Hillman, Head of Student Housing for EMEA JLL tells us about the nascent industry: “There are very few operators that have more than 1000 beds.” Hillman’s claims are attested by last year’s protests at the University of Cape Town. A group of students (known as the Rhodes Must Fall movement) got global attention after protesting against a number of university shortcomings, one being a insufficient accommodation. In July 2016, there was an estimated 216,000 bed shortages at South African universities. In wider sub-Saharan Africa, student housing is also a critically overlooked niche. In the last decade, higher education enrolment in Africa has more than doubled, numbers have jumped from 2.3 million to 5.2 million. The property market has in no way kept up with this growth. Rather, many students stay in non-specific, hostel-like accommodation. In the study “Investment Theme: Access to Housing”, Maiwase Chilongo predicts that Africa’s young demographic will “drive the demand for housing even higher and create the need for subsets such as student housing”.
So, why does Africa have a supply and demand gap? Firstly, few property managers on the continent specialise in the student housing market segment. According to Housing Finance Africa, “this is a key challenge in making this market segment work”. On the other hand, property developers for non-purpose built student housing (e.g. hostels, houses) try to put people off investing in order to protect their position in the market. “They say, ‘look, there’s no students sleeping on the streets, so there isn’t really a shortage’”, Hillman explains. “They find somewhere to lay their heads, but it doesn’t necessarily mean its somewhere they want to be. The question is, what is appropriate?”. Despite this attitude, Hillman believes that there is an opportunity for small scale developers to bridge the student housing supply and demand gap. He explains: “The most likely route is small scale developers taking a commercial view on occupational demand. We would anticipate developers, who become operators, who gradually build a portfolio. Then, in time we’ll see a consolidation of those parties. They get aggregated and swallowed up and become some of the big investment vehicles that we see elsewhere in other continents”.
Hillman also points out that affordability is a key factor. Many Africans struggle to pay for accommodation fees due to relatively high poverty levels and poor access to affordable credit. JLL estimate that by 2020, only 15 percent of the newly enrolled African student population will be able to afford purpose-built student accommodation. Unlike in the UK and US, there are few government loans available to cover housing costs. JLL found that African governments have kept their education budget allocations at around 4 percent over the past decade (relative to GDP). This lags behind the global average. However, this situation may be improving. The National Student Financial Aid Scheme (NSFAS), is a state-run student loan that covers private accommodation, among other costs. In January, NSFAS announced that the Minister of Higher Education and Training has made available funds of approximately 14.6 billion rand for 2016/7. Furthermore, large commercial banks such as Standard Bank, First National Bank, ABSA and Nedbank have partnered with developers and are providing loans in order to address the critical student housing shortage in South Africa.
Positive change is being made, but more can be done. There are ways of supplying student houses that have barely been explored yet, such as building student accommodation offsite and transporting it in modular methods. This process would overcome local labour and resource shortages. In the UK’s early private student housing boom, the vast majority of accommodation was not built, but instead rebuilt from cheap office space. There is potential for the same thing to happen in Africa. In Nairobi, several corporations are moving out of the CBD and into the outer city areas like Upper Hill and Westlands, thus leaving office block towers vacant. “The whole character of the CBD is changing around the education sector,” Hillman says. There’s 18 university establishments in Nairobi and a young population, which is why there’s a strong case for the recently available Ecobank Towers to be used as private student housing. Similarly, the Braamfontein district in central Johannesburg is transitioning into a student area. Braamfontein is home to the University of the Witwatersrand, and various other educational institutions. International Housing Solutions, a global equity investor, has funded the building of 1,900 private student accommodation options in that area. Provider’s Southpoint and Respublica also have student housing in Braamfontein.
How would one go about investing in such private student housing? Investors wishing to enter the sub-Saharan student housing market have a greater variety of vehicles and structures at their disposal than ever before. Firstly, investors can enter the market indirectly via REITs. An example of this is South African Arrowhead Properties Limited which purchased 51 percent of the aforementioned Respublica. Alternatively, investors can take direct entry by entering a public private partnership (PPP). Universities in Kenya and Ghana have recently concluded large PPPs agreements for the provision of student housing. Additionally, the Kenyan government is conducting a PPP feasibility study for a multi-million dollar student hostels development for five public universities. The project is expected to provide over 50,000 new student beds.
“What I think is particularly attracting investors to student housing globally, is that by nature it’s an alternative investment asset class. And by that, I mean its operational property, you have to get in there, get your hands dirty with operating the accommodation, you don’t just sit back,” Hillman concludes.
“The real attraction is that [student housing’s] success in the sector is not going to be determined by the boom and bust of the continuous cycle that we see. And as long as families aspire to be as well educated as they can possibly afford, you’re going to see ongoing demand for the sector”.
Top 15 private student accommodation providers in Africa (in order)
- Africanicon
- Shelter Afrique
- South Point
- Africa Integras
- Stag African
- Respublica
- CampusKey
- Real People Housing Holdings
- Octodec Investments
- Varsity Lodges
- Elgado Wordwide
- Crowie Projects
- International Housing Solutions
- Indluplace
- Yandy Property Group
Source: JLL (2016): Student housing a new asset class in SSA August
Top 10 most desirable university cities (by size of student population and concentration of top ranked universities by country)
- Cairo, Egypt
- Addis Ababa, Ethiopia
- Accra, Ghana
- Kampala, Uganda
- Nairobi, Kenya
- Pretoria, South Africa
- Bloemfontein, South Africa
- Cape Town, South Africa
- Johannesburg, South Africa
- Durban, South Africa
Source: JLL (2016): Student housing a new asset class in SSA August
This article first posted on the African Business Review Website and reposted here with permission.