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UK Student investment property market to benefit from new regulations for private student housing

24 July 2014
24 Jul 2014 -

Britain’s student housing market, particularly in the cities, is currently thriving with property investors at home and overseas. However, new regulations could leave a definite mark on this sector and potentially slow down its growth.

Demand for student properties is very high, particularly in major cities. As a result, family housing is being rapidly brought up and converted into houses of multiple occupation (HMOs) to be inhabited by students. This was done both in an effort to meet demand and in order to bring in the best returns, as investors generally reap more from student housing than standard buy-to-let properties.

This has led the government to pass the Article 4 Direction, a ruling aimed at protecting the UK’s stock of family homes. This requires owners of homes to obtain planning permission before converting them for use as HMOs for occupancy by three or more tenants who are not related to one another. It is up to local councils to decide whether to implement the Article 4 Direction in their areas.

Many organisations have opposed the implementation of this ruling, either in general or in specific areas. For example, the Article 4 Direction is due to be implemented in Leicester – a key student market – this August, and this decision was opposed by the Residential Landlords Association (RLA).
Such opposition often stems from more than just the need for HMOs to meet demand for student accommodation. Increasingly, working people are using HMOs as a way to keep their outgoings down as the cost of living goes up and mortgages become harder to obtain.

Existing investors in HMO properties for the student market, however, may benefit. Homes which benefit from “established use” for this purpose will not require planning permission and can continue to be used as such. With demand already high and the supply of new student homes hindered, rent on these existing properties could increase.

Partly because of the threat that the Article 4 Direction could pose, the UK’s student investment property market is seeing an increasing move from HMOs towards purpose-built student housing developments. As the new ruling applies only to existing homes converted for occupation by multiple student tenants, new developments specifically built to accommodate students are not affected.

Purpose-built student accommodation tends to occupy prime locations with university campuses, along with other amenities, close at hand. They also offer premium living standards; an important factor in a market which, according to a recent review by Knight Frank, is “[becoming] more discerning” about accommodation choices. They also provide investors with an easier route into the high-demand market, unaffected by the Article 4 Direction. Often, this type of investment also benefits from smaller outlays and guaranteed returns for a certain period after purchase.

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