Spare a thought for Australia’s pandemic-battered universities , which rely more heavily on revenues from international students than their peers in other English-speaking countries. Before the virus struck, more than 40 per cent of the sector’s funding came from overseas students. At the University of Sydney and the University of Melbourne, two of the nation’s most prestigious institutions, foreign students accounted for nearly 60 per cent of revenues, data from Victoria University’s Mitchell Institute shows. When Australia slammed its borders shut to non-residents in March 2020, universities’ dependence on funding from overseas students turned into one of the economy’s biggest vulnerabilities. A US$29 billion market in 2019, and the nation’s most valuable services export, Australia’s international education sector was plunged into crisis. Some Australian politicians claimed the sector only had itself to blame, having leaned too heavily on foreign students, particularly Chinese students, by far the biggest source of overseas enrolments. Amid the worst breakdown in relations between Canberra and Beijing in a generation, the nearly 40 per cent share of Chinese students in international enrolments came under sharp scrutiny. Yet, two years on from the start of the pandemic, it is enrolments from China that have proved the most resilient. When the government announced last November that fully vaccinated foreign students would be allowed to return to Australia from December 1 without travel exemptions, Education Minister Alan Tudge noted that overall enrolments from China were down just 7.5 per cent since 2019, compared with an average of 17 per cent. This is a key factor underpinning demand for purpose-built student accommodation (PBSA) in Australia, a nascent segment of the country’s property industry compared to the more mature markets in America and Britain. Despite being the world’s third-largest recipient of international tertiary students, Australia remains woefully undersupplied in terms of high-quality, professionally managed student housing. Research from Savills shows that, before the pandemic, the provision rate – the number of student beds as a share of full-time enrolments – in Australia was slightly less than 10 per cent, compared with 34 per cent in the United Kingdom. Australia’s student housing market is still considered an alternative asset class due to its relative immaturity and illiquidity – the average annual level of transactions in the sector worldwide was only US$16.7 billion between 2015 and 2019, data from property consultant RCA shows. However, it is attracting increasing institutional investment, underpinned by established operators that can manage the assets. Last week, Canadian asset manager Brookfield, a leading investor in student accommodation in Europe and the US, announced it had teamed up with local developer Citiplan to purchase a development site directly opposite the University of Melbourne. Australia’s magnetism as a destination for Asian students was a key factor in the transaction, as it was in the takeover of student housing platform Urbanest by Scape, a global operator, in 2019, the biggest deal in the sector to date. Despite the dramatic deterioration in Sino-Australian relations, the findings of a study carried out last year by the University of Sydney and Maven Data, which relied on open-access internet sources from within mainland China, found that Chinese internet users recognised and valued the wider benefits of an education in Australia beyond getting a degree. Wooed by in-person classes and incentives, Chinese students return to Australia The provision of high-quality student accommodation, which offers a range of amenities and helps foreign students forge new networks and feel they are part of a community, is a key factor in easing the transition to living and studying in a new country, especially in a post-Covid-19 world in which students are demanding higher standards in communal living. Moreover, private sector rents in Sydney and Melbourne have recovered sharply since early last year, and are even higher in some districts than at the start of the pandemic, increasing the appeal of more affordable, amenity-rich student housing. “The PBSA sector continues to demonstrate value across the board,” said Conal Newland, head of operational capital markets at Savills in Sydney. Still, property investors have their work cut out. Since Australia reopened its borders to vaccinated international students, 80,000 had returned to the country by mid-February. Under pressure to deploy capital in the higher-yielding student housing sector, investors face a dearth of operational, institutional-grade assets, making it difficult to exploit opportunities. As is the case with other non-traditional types of real estate, demand far outweighs supply. This forces investors to take on development risk, with very few proving successful in joining experienced developers and operators to gain meaningful exposure. Ruban Kaneshamoorthy, head of real estate investments at Brookfield in Sydney, said the sector “is getting more institutionalised but there is still some way to go”. Yet, as investors struggle to achieve scale, Chinese student enrolments continue to grow, reaching 42 per cent of total international enrolments at Australian universities last year, data from Savills shows. Relations between Canberra and Beijing may have reached their lowest ebb in decades, but Chinese students remain a crucial driver of Australia’s student housing market. Nicholas Spiro is a partner at Lauressa Advisory