Student accommodation resilient despite pressure on property market

Craig McMurray, CEO of Respublica Student Living. (Supplied)
Craig McMurray, CEO of Respublica Student Living. (Supplied)

While all three property types - residential, commercial and industrial - have been under pressure in South Africa for a while due to macro-economic factors at play, the niche segment of purpose-built student accommodation has been relatively resilient due to its hedge benefits in economic downturns, as well as a general under-supply in the market, according to Craig McMurray, CEO of Respublica Student Living.

The company's portfolio of student residences stretches across South Africa, with 10 residences in Johannesburg, Pretoria, Cape Town and Bloemfontein offering purpose-built affordable accommodation to tertiary students, regardless of their institution of learning. Currently about 9 000 students are accommodated in Respublica developments.

"I would describe the student accommodation segment of the property market as fairly stable. Yes, it may not outperform conventional property in a bull run, but it is far more predictable through macro-economic cycles and offers a good hedge option to a diversified portfolio," McMurray tells Fin24.

"Student accommodation has always been fairly agnostic when it comes to macro-economics. Apart from an estimate that universities can only provide 10% of their enrolled students accommodation, this does not even take into account the largely ignored student population at other tertiary institutions in the country like TVET colleges."

Respublica residences include study areas, security, cleaning and laundry, free WiFi and parking, says McMurray. Students also get free access to recreational facilities like gyms, swimming pools and games rooms.

Furthermore, support is offered to help students transition into university life.

"In the student accommodation market, you have to be very operationally driven and cannot just be a passive landlord," says McMurray.

"A trend we have seen across all property types is that tenants are requiring a lot more from landlords these days. They look for a lifestyle offering and expect additional benefits like free, uncapped WiFi, concierge services and modern communal spaces."

The expectations of students must, therefore, be factored into the capital and operating cost, and also be handled from a managerial point of view.

Challenges

One of the big challenges in the purpose-built student accommodation (PBSA) market segment, though, is affordability, says McMurray. In his view, under-supply is a ticking time bomb.

To try and address the affordability aspect, Respublica offers various options.

"We compare ourselves to an airline: you can choose economy, business or first class. We have a range of options in a residence. Yet, we concentrate on integration and all residents have an equal access to all facilities, regardless of their room type" says McMurray.

"We are still bullish about the PBSA market going forward. Obviously, there are some macro issues affecting everyone. Eskom is one of these. We have 300 to 1 000 students in any given facility and if there is load-shedding we have to ensure the power stays on. This brings about additional costs which are not recoverable for us."

Another challenge in the sector he names is questions about the sustainability of the National Student Financial Aid Scheme (NSFAS), a statutory body funded by the Department of Education, which provides study loans to academically able but financially needy students.

Poor administration by NSFAS and universities also impacts students' ability to pay for their accommodation timeously.

NSFAS accreditation of PBSA providers by Universities is also problematic as it can lack transparency and policies varies among tertiary institutions. In addition, the NSFAS rental rate allocated to students at certain institutions is below a market related rental creating a funding gap for students, and potentially forcing them into poor quality housing, not conducive for studying, according to McMurray.

A further challenge, he says, is delays in approvals for PBSA developments. 

Digital approach

Another approach to addressing the need for student housing comes from 26-year old Alexandria Proctor who built and launched a digital solution to student accommodation while she herself was a student at the University of Cape Town.

DIGSCONNECT already lists over 50 000 beds in around 11 cities around South Africa. The platform aims to connect SA students with property owners looking to rent out beds, rooms or entire properties. DIGSCONNECT recently completed their latest funding round in March 2019 attracting R12 million in investment.
 
"Modern, Western-style living is increasingly leaving people feeling isolated and unconnected and our generation wants to turn the tide on that," says Proctor. Therefore, there is a trend of young people choosing to live together well past their varsity years, opting for a sense of community and inclusion.
 
"It makes financial sense to live with other people and it promotes a psychological well-being and sense of belonging for the people left isolated in a society that’s less about human connections than any generation before us," she concludes.

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