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15: Why parents invest in student property for their kids – and the outlook


09-01-2004

Why parents invest in student property for their kids – and the outlook

 

Why do parents buy student houses?

Parents investing in student property for their children is a trend that began in earnest in the UK about four years ago. There are a number of reasons for this:

 

 

 

 

 

 

 

 

 

 

 

 

 

Is it still a good strategy?

This depends on what area is invested in. An area that is still up-and-coming and you could foresee prices moving above average trend could still be a good long term investment, particularly if the rental income is good and student rental demand is strong. Area with very high house prices, therefore lower yields and weaker student demand should be avoided. I have made a list of some UK cities which I believe could do well in the longer term, and those that are already very high in price which you need to be very careful with.

 

Lowish priced cities - could go higher?

Liverpool

Bradford

Hull

Manchester

Nottingham

Leicester

Lancaster

Newcastle under Lyme (Keele)

London (east e.g. E3, E15, E17, SE14, SE18)

Plymouth

Glasgow

Stirling

 

Medium priced cities - could drift higher?

Southampton

Portsmouth

Lincoln

Exeter

Norwich

 

Price already high – could flatten or reduce?

Leeds (Headingly)

Birmingham (Edgbaston)

Oxford (north)

Cambridge

Bristol

Bath

London (west, central, north)

Newcastle (Jesmond) 

Edinburgh

Aberdeen

 

The areas with already high prices are generally classy, leafy districts that are already very desirable. These may become even more desirable in the future – though if you wish to take a slightly higher risk / higher reward strategy, then investing in derived areas that are just about to be “gentrified” could provide the most lucrative returns – hence you might refer to the “Lowish priced cities” listing.

 

I expect house prices in the UK to stagnate for a period – say until Spring 2005 then possibly start either edging or moving higher again, as interest rates most likely start to drop – this scenarios is one where economic growth slows to say 2 to 2.5% and unemployment is stable or edges slightly higher – allowing rates to drop slightly (from a peak of say 5%).

 

There are also 500,000 students, some three times the amount of 20 years ago – which provide a very strong rental market in many student towns. They have started looking for the new student year/term so rental demand is likely to be strongest in University towns in the next 4-6 weeks.

 

In summary, purchasing a student home for our son or daughter is a wise and economic strategy if you purchase a sound property with potential, in an area with high student rental demand and an area that is “up and coming” close to the both the University and city centre. Victorian terraces provide most popular type of student house (say 4-5 student rooms), though flats (2-3 bedroom) are also becoming more popular, particularly in London.

 

 

   

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