With the budget, a new financial year approaching and financial times changing quickly, we look into what potential changes we might see in the Purpose Built Student Accommodation (PBSA) asset class in the coming month.
As the popularity of PBSA continues to grow almost exponentially along with yields and rental growth, we may reasonably expect for changes and further regulation to be applied to the market. Far from being the fringe asset class that it once was, PBSA is fast becoming the mainstream.
In an article for Property Week, Andrew Wells noted “Certainly, purpose-built student accommodation (PBSA) remains the focus for large investors from home and overseas”
However, in the same article he notes the potential challenges of rising popularity and profits. As student numbers continue to increase and the focus of public opinion is fixed on to the cost of higher education we’re likely to see universities, local authorities and the government introduce legislation to protect tenants.
This is no bad thing, of course, as it promotes stability and trust in the sector. The vast majority of newly built accommodation is of the highest standard with modern surroundings and amenities. If the government were to introduce further safety regulations, for example, the expectation is that well over 90% off PBSA built in the last decade would pass stringent tests.
So what might we expect to see soon then?
First and foremost it wouldn’t be surprising to see a stamp duty shakeup. We say that due to previous government moves aimed at increasing its tax revenue targeting private sector landlords. Stamp duty increases and a reduction in tax relief have boosted the coffers of the treasury at the cost of Buy-To-Let landlords, but might we see a similar approach to PBSA?
A popular rumour right now is that The Treasury may be considering switching the liability for stamp duty from the purchaser to the seller. This could potentially be fantastic news for long term investors, who may well see the cost of purchasing a student ‘pod’ reduced by thousands.
Something else we might expect to see is a raft of changes to student loans and how students are funded throughout their courses. Currently students are said to be struggling following cuts to bursaries and loans to help with living costs.
As previously mentioned, public focus has now shifted on to the cost of education, and public anger is growing at the lack of support for young students. Nurses, for example, had their bursaries and loans cut quite severely and this has had the effect of those enrolling in nursing courses dropping drastically in number.
With this in mind, it’s likely that the chancellor may announce measures to reverse this. We already know that Theresa May will cap tuition fees, but may we see more financial support for students attending university?
It’s unlikely that rental growth will slow in PBSA due to huge demand and increasing student numbers so, realistically, a growth in financial support is vital in the long term.
For PBSA landlords, these measures would certainly be helpful to their long term financial goals, with students more able to afford the cost of higher education and, more specifically, the cost of renting accommodation whilst studying.
We will be watching the budget, and further announcements, with interest.