Student housing investment offers good opportunity

Few asset classes have the global and emotive appeal for most people as real estate does. Whether acquired as investments or for home ownership, real estate assets continue to top the leaderboard among asset classes here in Kenya.

For real estate investors, the strong returns from the sector offer an encouraging respite in a world of high inflation, lukewarm stock markets and falling interest rates. As Kenya regains its economic footing in the wake of a prolonged electioneering period, a vibrant real estate sector will play a key role in sparking the country’s economic resurgence.

But a crucible of disruptions is redefining the sector and its eventual role in Kenya’s economic narrative. In its Global Emerging Trends in Real Estate 2018 report, advisory firm PwC points to a number of disruptions that will transform the nature of real estate not just as an investment class but as a product or service that we all use.

New technologies, rapid urbanisation and changes in human behavior are prying the value of the real estate model away from bricks and mortar to the search for cost effective ways of offering simple access that match customer needs.

This is the reason why huge amounts of capital are flowing freely into the sector. But the needs to capture value and make every shilling count are forcing real estate players to innovate, seek new segments and use any means necessary to sweat out real estate assets beyond rental growth. The commercial and affordable housing segments for instance are attracting considerable amounts of investment. The most significant is the Government of Kenya’s Sh 2.6 trillion plan to deliver approximately one million units in the next five years as part of its Big 4 economic agenda.

This follows an established deficit in the country’s housing needs against the growing population. According to the World Bank, Kenya’s population increases by one million per year against an increase of less than 50,000 housing units over the same time.

However, with all these investments in the commercial and affordable housing sector, there is one segment that is still falling short in terms of supply vis-à-vis the demand - the student housing segment. Kenya’s fast expanding youthful population offers a compelling opportunity for real estate investors.

The enrollment of students in universities has increased since the double intake of 2011, which was aimed at reducing the waiting period for Form Four leavers before they join universities and other institutions of higher learning.

Due to the increased enrollment to institutions of higher learning over the last 10 years, universities are constrained in the establishment of appropriate infrastructure including student accommodation.

The provision of decent, quality and modern student housing has lagged behind the increase in student enrollment, with universities only being able to provide an estimated 36 percent of their students with guaranteed accommodation, resulting in a shortage of over 500,000 beds.

This gap has mainly been filled by the private sector through investments in student accommodation through hostels, shared accommodation, conversion of residential housing into student accommodation amongst others.

Still, more than 75 percent of the student accommodation available is of poor quality and is characterized by inadequate security, affordability, lack of adequate space for reading and relaxation, congestion, poor amenities and lack of professional management.

This is why a sharper focus on student housing by both private and public sector players is crucial. Century Developments for instance is accelerating the roll out of key real estate assets in the education and affordable housing sectors, starting with over 10,000 beds of purpose-built student accommodation and 7,500 units of affordable housing in Kenya.

Increasingly, large scale real estate developers are building new student accommodation assets that are of better quality, modern, affordable, purposely designed for the residents and with good value for money to address the gap in quality affordable housing for students in institutions of higher learning.

Global private equity providers have also shown a keen interest in the sector as student accommodation presents an asset class that has strong risk-adjusted returns and hedge against inflation amongst others.

Local institutional investors can also play a big part in investing in student housing as an alternative investment asset class for diversification of their investment portfolios and driving a strong risk-adjusted returns on their portfolios.

DOMINIC KIARIE, Group CEO & MD, Century Developments Limited.