Following a global rise in interest rates, currency fluctuations and the cost-of-living, investors looking ahead to 2023 may be reluctant to part with their capital – however, for savvy, switched on investors, there are huge gains to be made if they invest wisely over the year ahead.
As the pound continues to fluctuate in value against the dollar, the cost-of-living increases for millions of families across the UK, and interest rates for buyers continue to rise, it is essential for investors to plan their investments for 2023 early and ensure that they are putting their capital where there are huge gains to be made. The most resilient and recession proven investment class in the UK has time and again been proven to be properties that are popular with students and accommodate the increasing student population, and investors who decide to invest with student-friendly property over the next coming year are expected to not only maintain their capital throughout economic fluctuations, but see it grow in value.
It is not too late to capitalise on the current market state, and as investors enter into 2023, it is important to not only choose wisely where to invest your capital but to take into consideration a number of other key factors when investing in 2023.
Here are our top 5 tips for investing in the new year.
During the financial downturn of 2008, properties rented in the UK by students were one of the few investment assets that increased in value and demand. This is due to three important factors.
During times of economic uncertainty, more people actively choose to go to university and to stay in further education, making student-friendly accommodation soar in demand. In the 2007-08 academic year, there were 2.4 million students attending university across the UK, and in the aftermath of the financial crash and the 2008-09 academic year, this increased to 2.47 million – increasing by 70,000 students in just one academic year. In comparison, in 2022, there are currently 2.75 million students studying across the UK, meaning in the 13 years since 2009, the student population has grown by 280,000 – an average of just 21,538 students each year.
The higher education system in the UK is a one of the top 3 destinations in the world for international students looking to study abroad, with its reputation for world-class education, diversity, and bustling student cities attracting the 605,130 international students currently studying in the UK in 2022.
On average, properties in the UK that are student-friendly have lower void periods and are rented for longer tenancy lengths. This is due to students preferring to stay in the same location throughout their studies, with the minimum degree length in the UK taking three years to complete in full-time study, and many going on to study for master’s degrees or stay in the same city for their first professional position.
Where you invest is just as important as what you invest in. A great location for a profitable property investment will always have the following criteria.
Cities with a large population of young people will usually have a high student population, with an average of 66% of students studying at each university looking for student-friendly accommodation outside of the Purpose-Built Student Accommodation (PBSA) sector. Young people are also more likely to rent for longer periods than any other generation, meaning that demand for rentable property is high in cities with a younger population.
The overall job market and subsequent migration of big businesses to a city is a good indicator to reflect a high population of young people looking to rent in the city centre, as young people are much more likely to migrate to a new city for job prospects than they were 20 years ago. Amidst the surge in ‘lifestyle renters’ and the flexibility that comes with not owning their own home, only 28% of young people planned to stay in their current job for 5 years or more, with half planning to leave their position within 2 years. Additionally, the current job market favours mobility, and businesses often ask employees to relocate across the country, which would prove to be significantly harder if they owned a property instead of renting one.
With the influx of young people to any city comes demand for rentable property, and as the number of those relocating continues to increase at a higher rate than properties can be built, the demand for property soon outweighs supply and creates an undersupply. Also contributing to the high demand of rentable property are students, who are much more likely to pay a premium for their property in order to be closer to their studies and the amenities the city has to offer. A location with a proven undersupply of properties for its rental market is a great indicator that your property will consistently be rented with smaller void periods.
Institutional investors are responsible for generating returns for high profile investment clients including pensions funds, so investing in the same assets and locations – where possible – makes sense. Popular investment indicators for institutions include the following.
When investing in property, it is vital to ensure you are investing in a large-scale development that is in a central location, simply because these are the properties that are in the highest demand within the rental market. By investing in a property that is not near the universities, amenities, or city centre, you can open your capital up to depreciation. You may also experience longer void periods and as a result, diminishing returns on your investment, as younger people will not want to live away from what has brought them to that city. At Beech Holdings, we only develop in the areas with high demand and proven undersupply, close to everything the city has to offer and where our tenants have expressed they are interested in living.
When considering an off-plan investment, whether it be short or long-term, it is important to consider how much capital growth your property will achieve in its location, and even during the time it takes from purchase to completion. This provides additional value to your investment just throughout its construction and without a tenant in-place and can allow investors to sell their property upon completion for a profit. At Beech Holdings we have a wide range of off-plan investments available to our investors, with our clients achieving an average of 15% capital growth on their properties from the point of purchase to completion.
By investing in a growing sector that has seen an incredible surge in demand in the last year, you can be sure that your investment will be in high demand in the rental market, and with sectors like the Co-living sector allowing investors the opportunity to have a tenancy for a much longer period than the Private Rented Sector (PRS) and the Purpose-Build Student Accommodation (PBSA) sector, your investment will have less void periods allowing you to not only achieve a premium rent, but for a more secure timeframe. Our newest project at Beech Holdings is the first-ever co-living development in the investment hotspot Salford and has an audience in the rental market of those aged between 18 – 30-years-old, allowing our clients the potential for a 12-year tenancy.
No matter what the market conditions are when you are investing, choosing a credible company is key for investment success. Key criteria you should look for include the following.
By investing with a developer that has a proven track record of large-scale delivery of developments over a long period of time, you can be sure that you are putting your capital into an investment provided by a business that has experience providing the rental market with what they are looking for and is a much more secure way to invest than with a start-up developer who has perhaps only delivered one or two small sites. For example, at Beech Holdings we have a proven track record of 18 buildings over the 20 years we have been in business, with the largest featuring 317 apartments that maintains 100% occupancy each year and has done so since its completion in 2018.
When looking to invest, it is important to ensure you are choosing a company that is transparent with its payments and that has paid out returns to their clients, otherwise you could end up investing your capital into a company that will not pay you a penny. In the last 2 years alone, we have paid out over £7 million in investor returns to our clients, and always strive to provide payments on time with clear communication to our investors.
When considering an investment, you should always make sure you are opting for a company that has a healthy pipeline that they can outline to you, with a clear direction for the business on where they are planning on developing, expanding into, or what sector they are interested in entering. At Beech Holdings we have a development pipeline laid out that is worth over £500 million and will provide our clients and investors with the opportunity to enter new cities, new sectors, and most importantly, invest in sustainable properties across the country.
Most investors don’t have the time to manage their assets themselves, so choosing an investment that doesn’t come with the hassle of being a landlord is a great way to ensure your returns and your time is maximised. Before you invest, make sure that you consider the following.
When investing in a property you should always make sure it comes with the option to have it fully managed, otherwise you could find yourself becoming a full-time landlord – taking calls from your tenants at 3am when their heating won’t turn on, formulating all the paperwork yourself, and have to deal with your tenants not paying their rent on your own. Every property we develop comes with the option to be fully managed by our in-house lettings and property management team, meaning you can truly become a hands-off, hassle-free investor.
When investing in property, some companies prefer to outsource their lettings and property management, meaning you will have to deal with two different companies if you have any questions or issues, and there is the possibility that the company they choose to outsource to are not one that you would have chosen for yourself. By investing with a company that offers full management in-house, you are protecting yourself from another hassle when dealing with your property and ensuring that everything is taken care of in-house.
When choosing an investment property, it is important to understand whether just your property in the building is being managed, or if the whole building is being managed by the company. If it is only your property being managed in the building, then that can open you up to dissatisfied tenants if the building were to fall into disrepair or have any issues, and even unseen costs in maintaining the building itself. At Beech Holdings, we retain management of almost all of our apartments that we develop, maintain a 97% occupancy rate and a 65% renewal rate, and have an on-site 24/7 maintenance team who are on-call for our tenants to resolve any issues they may have in their apartment or in the wider building.
If you are planning on investing in 2023 then it is vital to choose wisely where to invest your capital and to take into consideration the key factors laid out above.
If you are looking for more information on how you can invest with a secure developer with a proven track record of delivery, and to capitalise on the current market, then get in touch with one of our expert property consultants today.