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Hong Kong investors take a shine to UK student studio flats

British exhibition draws HK investors with high rental yields, but experts warn of a housing oversupply and future difficulties in reselling units

PUBLISHED : Wednesday, 20 March, 2013, 12:00am
UPDATED : Wednesday, 20 March, 2013, 5:22am

More and more Hong Kong investors are turning to a new type of British property asset - student studio apartments.

Located in purpose-built blocks or converted buildings, these properties can be purchased for less than £50,000 (HK$586,000), making them less costly to buy than most mainstream British homes.

Hong Kong investors have purchased 17 such studio flats at the City Point student accommodation block in Liverpool following an exhibition organised by Hong Kong Homes, a sub-agent of British estate agency Knight Knox. The five-storey building is located in Great Homer Street on the edge of the city centre.

The developer, Oscar Developments, had tried to find a single buyer for the whole student block before marketing studios individually. It built City Point as offices in 2009 but could not get enough business tenants, so it is now turning the building into 176 student studio flats.

It will manage the building on completion and guarantees net yields of 8 per cent during an initial five-year rental period.

"City Point is one of the most exciting student developments we have in our portfolio, due to its proximity to both the Liverpool Hope University and Liverpool John Moores," said Kerry Yan, business development manager for Asia at Knight Knox.

"The residence is located within a huge regeneration scheme named Project Jennifer, which plans to invest £150 million to bring a wide range of new retail outlets to the historic street."

The 10-square-metre studios are priced at £43,500 each. This works out at £406 per square foot, which is four times higher than the average £109 per sq ft price for all flats within the L5 postcode district where City Point is located, according to property portal zoopla.

Robert Hadfield, managing director of Pineflat, an investment property management firm, is concerned that Liverpool may have a glut of student housing. "There are today 34 large private-sector student housing developments with current vacancies in Liverpool," he said.

"I'm not sure that another one is required."

The South China Morning Post tried to contact Oscar Developments via its accountants, Kinsella Clarke, but the firm did not respond. It gives its accountants' offices as its address. Other student housing schemes offered to Hong Kong investors include Academy 8 in Notte Street, Plymouth, where developer Silverton Global, is slated to complete refurbishing an existing student housing block by next year.

The developer is offering studios on 999-year leases at prices starting from £43,000. The block will be managed by CRM, Britain's biggest independent student property management firm.

Stuart Moore, commercial and marketing director at CRM, is confident Academy 8 will appeal to students.

"There is lots of accommodation out there, whether it be new-build or old terraced houses. So there is a lot of choice," said Moore. "But if it has all the key elements of safety, security, great facilities and a good price, then it will do well."

However, property experts urge investors to be cautious before buying studios at student housing blocks. Owners of student studios can only lease them to students and re-sell them as student accommodation, so the resale market, as yet untested, will be limited, says Hadfield.

"The main worry must be reselling the unit in due course without the benefit of a Hong Kong roadshow that has sucked the buyers in at the outset," said Hadfield.

"It could take years for a secondary market to develop and I suspect that in any case it will be via the auction rooms at distressed prices."

Marcus Roberts, head of student investment at Savills, says investing in student housing is more complicated than investing in mainstream properties.

"There is no mortgage availability that I am aware of," said Roberts.

"You need to be wary of the management company and be sure they have a good reputation.

"You also need to check the developer has experience in the student housing market.

"Students are notoriously lazy, so accommodation needs to be close to the university, within a 10 to 15-minute walk."

Overall, demand for student housing in major cities like London is strong, says Roberts. Although the number of British students is declining, more overseas students are arriving.

On the supply side, old student accommodation blocks need to be upgraded or replaced, which means there is scope for new student housing blocks to be built, he says.