Why private capital is shying away from student housing

Though student housing in Nigeria has seen private capital injection, investment interest remains low given the size of opportunities in the sector as reflected in the level of demand and annual yield.

Nigeria’s growing college population seeking alternative accommodation outside poor campus hostels is estimated at 70 percent, meaning that the country’s student housing is a goldmine waiting to be tapped.

Over the years, the student population has increased significantly, reflecting national population growth which, according to United Nations estimates, was 197.4 million in October 2018. This was an equivalent of 2.5 percent of the total world population.

Similarly, UNESCO says there are over 100million young adults studying courses in Polytechnics, Universities, and Colleges of Education across Africa out of which 15 million are in Nigeria.

Checks by BusinessDay shows that Nigeria’s already dilapidated on-campus hostels are able to provide accommodation for only 30 percent of the university students whose annual enrolment rate stands at 12 percent.

Today, in Lagos, there are over 20 tertiary institutions and 8 of them, which account for a student population of over 90,000, are concentrated in Yaba alone, where there is over 80 percent hostel supply gap, according to findings by Estate Intel.

The online real estate data platform quotes the vice-chancellor, in 2017, as saying that the University of Lagos (UNILAG) had a student population of 58,000 and 8,000 student beds.

Yaba College of Technology (YABATECH) had over 20,000 students at the time according to the school website and 6 halls of residence meeting less than 10 percent of demand.

Accommod8, that investment in student housing gives about 22 percent returns which is more than double what commercial real estate gives, not to talk of residential real estate which gives 4-5 percent.

Rotimi Akindipe, MD/CEO of Groveworld Realties, affirms, saying, “hostels for students are an opportunity that is crying for investment and if a developer has an understanding with an institution, it is a worthwhile investment.”

These opportunities cut across countries in Sub-Saharan Africa. In Ghana, for instance, demand for purpose-built student accommodation (PBSA) is growing rapidly and attracts interest from investors, private operators and developers from around the world.

Madam Stella Baah, Social Security and National Insurance Trust (SSNIT), properties manager, Cluster A, notes that PBSA in certain Sub-Saharan African regions is set to emerge as an attractive alternative investment category, just as it has in developed markets such as the United Kingdom and the United States.

It is curious therefore that in the face of these opportunities and future prospects, which seem compelling, private investment interest is not catching the expected fire in the sector.

The situation is such that since the establishment of the University of Ibadan in 1948 as the first University in Nigeria, the strategy for the provision of student accommodation remains largely driven by the institutions themselves.

Some of the few developers including Student Accommod8, which have ventured into the sector say they have seen incredible occupancy rates, typically achieving 90 percent occupancy within six months of completion, and considerably high annual rental yields. Yet investors remain aloof.

Findings by Estate Intel reveal that investors have their reasons for holding back investment in this sector. One of such reasons is the difficulty in structuring financing with schools.

Dolapo Omidire of Estate Intel quotes Student Accommod8 CEO as confirming this difficulty, stressing that “educational institutions that lease land to developers create terms of agreements that are onerous and difficult to finance.”

Another challenge is that developers are sceptical about the paying potential of the students. For this reason, many developers have the more traditional sectors on the front burner.

“We understand that students are price-sensitive, but our data shows that good products still sell and students are willing to pay a premium for amenities. The data that we track shows that rents for student housing in Yaba have grown considerably over the past few years,” Omidire explained.

The difficulty in finding suitable parcels of land, where there is a high concentration of schools, is yet another major challenge according to the Estate Intel survey. Omidire cites Yaba which is very well built up with the highest concentration of schools.

“A sharply contrasting narrative plays out in other parts of Lagos such as Ibeju-Lekki where First World Communities, UPDC, and Student Accommodate among other developers, have been able to secure land and built successful hostel projects within and outside the Pan Atlantic University campus,” he noted.

Source: Business Day

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