Student accommodation a national crisis

The scramble for student accommodation could turn into an avalanche this week as the full complement of students return to campuses across the country, bringing with it the potential for further confrontation and violence.

President Cyril Ramaphosa stated in his State of the Nation Address that 900 000 students from poor and working class backgrounds received funding to study at universities and colleges. This has highlighted the scale of the need for student accommodation.

Exacerbating the squeeze for places are those students, so-called career students, who are not making headway with their studies and have lost their National Student Financial Aid Scheme (NSFAS) funding but are demanding accommodation. The Cape Peninsula University of Technology (CPUT) issued a statement indicating that it is these career students who are occupying the very spots meant for newcomers. The university noted that these learners, who no longer have NSFAS funding, are not progressing academically, have pending disciplinary issues, and are submitting fake student numbers while living close to the university, forcing their way back into the institution.

The Institute for Justice and Reconciliation (IJR) reported that demand for housing far outstrips supply, leaving many students forced into unsafe or expensive living situations. This lack of accommodation has opened up a significant opportunity for private investors in student housing.

Dean Wiid, Associate Director at Galetti Corporate Real Estate, observed that the growing interest in this sector, particularly from Real Estate Investment Trusts (REITs), is fuelled by the under-supply of student housing, creating a lucrative investment opportunity. “Student accommodation is a growth market, and there are hundreds of older, vacant, and currently deteriorating commercial buildings in urban centres that are perfect for redevelopment into student accommodation. The attraction to this asset class is going to trend for several years still,” he stated.

Joff van Reenen, CEO of international auction consultancy The Chant Laboratory and Director of the South African Institute of Auctioneers, pointed to the staggering demand, with over 4.2 million applications for just 131,987 first-year places across 19 of South Africa’s public universities. “This immense pressure on the system, coupled with an increase in the percentage of matriculants obtaining a bachelor's pass (47.8% in 2024, up from 40.9% the year before), underscores the severe shortage of accommodation,” he explained. Van Reenen added, “Investors are capitalising on this high demand, with reports of rental yields ranging from 8% to 12%, far above traditional residential returns.”

The Department of Higher Education and Training has stated that despite fiscal constraints, the government has allocated R5.7 billion for Phase 2 of the student accommodation programme, with a target of 300,000 beds by 2032. Phase 2 specifically seeks to complete 17,200 beds at this cost. Lauren Kansley, spokesperson for CPUT, mentioned that the university owns and operates residences and relies on unaccredited and private accommodation to meet the added demand. “We place 50% of our student cohort into campus accommodation, and we assist those with private accommodation to source reliable landlords and facilitate NSFAS payments,” she said.

Van Reenen noted that Growthpoint Properties has launched an unlisted student accommodation REIT with a R2 billion seed portfolio and approval from NSFAS. “The World Bank Group’s International Finance Corporation (IFC) also launched an extensive feasibility study looking at investing R150 million in a local property company’s plan to develop accommodation hubs for an additional 16,000 student beds. At the time, South Africa’s student housing supply-demand gap already exceeded 500,000 and has been growing ever since,” he explained.

John Birkett, Franchisee of Rawson Cape Metro Classic Rentals, explained that since 2024, there has been a rise in demand for student accommodation in Cape Town, particularly with the return of private students post-Covid and the opening of new campuses like Varsity College in Newlands. “The opening of new private institutions has regenerated the demand for student accommodation,” he said. Birkett reported that rental yields for student accommodation have increased, with some cases seeing increases as high as 42%. However, he added that a stable average rise of 10% is more common near major universities like the University of Cape Town (UCT). He stated, “There is strong demand from investors who recognise the healthy yields one can earn on student rentals.”

Similarly, Louise Varga, Area Manager for Pam Golding Properties overseeing Stellenbosch, Somerset West, Strand, and Gordon’s Bay, observed that the demand for student housing in Stellenbosch has been increasing sharply. “The construction of new accommodation has been unable to keep pace with the rising number of students,” she noted. Varga also pointed out that rental yields for student properties in Stellenbosch have been rising steadily. “Rental yields have been rising steadily by 8% to 12% annually, and this upward trend is expected to continue due to the combination of high demand and limited supply.” Both Birkett and Varga agreed on the investment potential in this sector. Varga highlighted that student housing is a valuable addition to a well-rounded real estate portfolio: “Student housing offers nearly 100% occupancy rates and strong potential for capital growth.”

Birkett emphasised that investors should focus on multi-roomed buildings, stating, “Investors should look at purchasing multi-roomed buildings and apartments, as these tend to be highly sought after by students.” He also noted the popularity of studio and one-bedroom apartments, which are in high demand, especially for NSFAS-funded students. Despite the competition, both Birkett and Varga explained that oversupply is not currently a concern, pointing out that the demand for student accommodation exceeds the available supply, creating upward pressure on rents.

Private landlord Denise Hendricks, who has been renting to students for 18 years, stated that for her, taking on students is not solely about investing but about helping them. “Universities are obligated by the government to take on more students, so for me, it’s not only about the investment per se. Yes, I do make money from student accommodation; however, it's more about the need for assistance to students.” Hendricks also pointed out that between the two occupancy rates, private accommodation is more affordable than campus residences or complexes/students' villages. “Private accommodation is a home away from home. Most of my students stay until they graduate. It's like their home away from home,” she concluded.

Tracy-lynn.ruiters@inl.co.za

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