PBSA, or Purpose Built Student Accommodation, could be in line for a further growth boost say experts as new legislation is introduced to curb the rise of Houses in Multiple Occupation (HMOs).
In student towns and cities there has been a rapid rise in the amount of PBSA developments, especially in the likes of Manchester and Leeds, but other areas such as Nottingham and areas in Wales are still dominated by HMO’s which are larger houses split into multiple rooms and charged separately. Whilst the more affluent areas are benefiting from increased competition for business these poorer areas suffer from a lack of investment and, it has to be said, investors suffer from a lack of opportunity.
This could be about to change as licensing laws are updated to take HMOs into consideration. According to Which? the owners of up to 177,000 properties will be required to obtain new licences this year as the criteria for HMOs is redefined. As it stands, landlords are required to seek a licence if the property is rented to five or more people from more than one household, at least three storeys high or the tenants used shared facilities.
Updated legislation will mean that from the 1st October, any property occupied by five or more people from two or more households will be considered a HMO, notwithstanding the height or the available facilities.
Experts predict that, as a result, it will make it much more difficult to invest in HMOs which are often seen as an easy and quick return on investment. Given that there currently aren’t enough beds or “pods” to satisfy demand in PBSA then it’s entirely conceivable that the money which was intended for HMOs could be on its way into PBSA development.
As an illustration of the growth of the asset class, Savills revealed that last year investment into student accommodation had risen by 17%, much of this attributed to foreign investors looking to increase their market share, with annual investment volume reaching £5.2bn.
Current estimates for applications for university places for the 2018/2019 academic year are once again very healthy, indicating no slowdown in demand from students or a reduction in appetite from investors who are currently seeing some of the best yields in the market.
Student numbers from the most recent academic year which has just finished indicate that there are currently three students to every available bed. PBSA developers are desperately trying to meet the demand, which keeps rising and developments are springing up with increasing frequency all across the UK.
Large investment and hedge funds are thought to have an even keener appetite for acquiring large stakes in developments along with smaller investors keen to join the party.
With government legislation increasingly seeking to weed out bad landlords and student exploitation it would be no great surprise to see regulation tightening even further in the coming years, and with demand set to grow further now seems the perfect time to seek an expansion in PBSA portfolios or an entry into the market.
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