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The once-neglected sector of student housing is reinvigorating the building boom

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by April 5, 2016 General
Australia now sits with the United States and United Kingdom as a top destination for foreign students.Australia now sits with the United States and United Kingdom as a top destination for foreign students. Photo: Paul Jones

Australia’s student housing market is shaping up to be the next big thing as an influx of foreign scholars entices investors into a neglected sector, reinvigorating a home building boom that is providing vital support to the wider economy.

An English-speaking country at the doorstep of Asia and offering an enviable quality of life, Australia now sits with the United States and United Kingdom as a top destination for foreign students.

Goldman Sachs has seen the potential in student housing, partnering with investor Blue Sky to launch a $1 billion fund to invest in the sector.

“The expanding Asian middle class story is a big one for our market,” said Adam Vaggelas, director and head of real estate investing at Blue Sky Private Real Estate, a subsidiary of Blue Sky Alternative Investments.

“The time zone differentials and proximity and the quality of our tertiary institutions help a lot in terms of attracting international student intake.”

The sector could help underpin Australia’s home building boom, which is coming off the boil as red-hot property prices start to cool.

Highlighting its growing clout in the wider economy, construction was a major driver of growth in the fourth quarter, helping offset a big drag from a mining downturn.

The numbers of students need to find housing in Australia add up rather nicely, jumping by 10 percent in 2015 from 2014, to nearly half a million, led by students from China and India.

Yet a national census of university student accommodation providers the University Colleges Australia showed Australia had fewer than 80,000 student accommodation beds as at November 2014.

International estate agent Savills said growth in number of student beds provided has been a glacial 4.3 percent over the 15 years to 2014. It is expected to pick up to an annual rate of 4.7 percent by 2018, but that’s still well off the number of beds needed.

“Undersupplied, the sector offers significant potential,” Savills said, noting development will be focused on the major metropolitan cities of Melbourne and Sydney in which most of the big universities are located.’

Overcrowded

Living expenses are a major cost for international students and the mismatch of supply and demand has led to stories of overcrowding and exploitation by unscrupulous landlords.

Nineteen-year-old Ruby Meredith found herself in an overcrowded apartment with Chinese and French students when she moved to Melbourne from her hometown of Geelong some 80kms away.

The inner city two-bedroom apartment had no less than seven people living in it. She has since moved out to the suburbs.

“Of course, I would prefer to live in the city but that place was ridiculous… It was unliveable,” said Meredith, who studies music at the Melbourne Polytechnic.

Nicole Sim, a 23-year old communications student from Singapore used to pay A$395 a week for a one-room studio apartment near RMIT University in Melbourne city, but had to settle for cheaper accommodation in the suburbs.

“I would like to live in the city, closer to university. I do wish there was cheaper housing in the city,” she said.

Blue Sky plans to fund up to 10,000 student beds across Australia and New Zealand by 2019. UK-based GSA Group has opened a Sydney office in February, laying the groundwork to have 25,000 student accommodation beds under management by 2025.

“We see that Australia has all of the market fundamentals to develop into a more institutional-grade asset class given the world-leading universities, real estate market and the large and growing international student population,” said Simon Loveridge, managing director of GSA’s Asia Pacific arm.

Sydney-based Campus Living Villages Pty Ltd, the world’s biggest developer of student accommodation by number of beds, is considering a market listing to raise A$1 billion over the next three years to pay for new developments in Australia, the U.K. and the U.S.

“We are in a growth mode,” CEO Simon Hickey told Reuters. 

Reuters. Additional reporting by Byron Kaye in Sydney and Jarni Blakkarly in Melbourne; Editing by Eric Meijer.

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