Growing demand for student accommodation in Stellenbosch underpins lucrative return on investment

Student accommodation is among the fastest-growing property sectors in many countries with a similar trend appearing evident in South Africa where the supply-demand gap for this asset class is widening. According to estimates by the World Bank’s International Finance Corporation, the shortage of student beds in South Africa will reach 780 000 by 2025. This makes an investment in accommodation close to universities and educational institutions a viable choice for investors seeking strong net yields and solid capital growth.

Louise Varga, Pam Golding Properties area manager for Stellenbosch, Somerset West, Gordon’s Bay and Strand, says in student hubs such as Stellenbosch, where the university can only accommodate a third of its 30 000 students in official residences, the accelerated demand for student accommodation has pushed up property prices, especially sectional title properties close to campus.

“Over the years we have found that buy-to-let investment in student accommodation generates sound returns as rental demand continues to increase exponentially, considerably exceeding supply. This time of year is when the uptake really heats up, as parents plan for the coming academic year.

“Students will always need a place to live and in South Africa, with a rapidly growing youth population entering tertiary education, the demand for student accommodation is only going to intensify. Furthermore, the rental market is increasingly brisk – especially after the lifting of Covid restrictions – with a new influx of students each year ensuring that properties seldom stand empty.

“For owners/landlords, if your rent is market-related, you are almost guaranteed a 100% occupancy rate. Also, your rental income is secure as it is typically paid by the parents. An average deposit is usually equivalent to two months’ rent, providing additional financial assurance for landlords.”

There are also tax incentives when buying multiple new properties with the intention to rent them out. Some expenses, such as levies, insurance fees, advertising costs of marketing the property and cleaning and security costs, are deductible from the rental income before tax is calculated. In addition, Section 13 of the Income Tax Act allows for a significant tax benefit on residential property subject to a number of criteria. The investor must own at least five, brand-new (not existing or second-hand) residential units in South Africa, which must be used only for trading purposes, namely, residential letting. A 5% deduction for depreciation over 20 years is allowed under this Act for normal residential units, and 10% for low-cost accommodation.

Pam Golding Properties is marketing several student developments in Stellenbosch, including ‘Archimedes’, ideally positioned close to campus on the corner of Banghoek and Bosman Street, which offers secure and serviced apartments, and ‘Da Vinci’, which is also within walking distance of campus. Studio apartments at Archimedes start at R1.85 million while a two-bedroom unit sells for upwards of R2.9 million. Meanwhile ‘The Niche’ comprises 51 apartments including bachelor, one-, two- and three-bedroom units ranging from R1.58 million to R2.7 million including VAT (no transfer duty payable). Bosman’s Club, a mixed-use development, well-located in the burgeoning creative district of Bosman’s Crossing has now sold out.

Aside from the many attractions that make Stellenbosch appealing to residents and tourists – from vineyards and wine farms to a diverse cultural history, it is aiming to become the first town in South Africa to be able to mitigate load shedding where possible. In a bid to become less reliant on Eskom, the municipality is investigating the installation of solar panels at key municipal sites throughout the town, including Town Hall and the traffic department.

Says Varga: “Being able to switch to alternative renewable energy to keep the lights on in buildings that offer essential services will make Stellenbosch and its university even more appealing to students from around the country. It shows that this forward-thinking town is making a commitment to a more sustainable future by doing what it can to minimise the economic impact of load shedding where possible.”

Posted by The Know - Pam Golding Properties