Private providers of state-funded student accommodation at the University of Johannesburg (UJ) are owed more than R10m in rent, and battling to settle the matter because of a bureaucratic snarl-up.
Under the government’s National Student Financial Aid Scheme (NSFAS) universities are given money to cover fees for needy students and as much as R45,000 for their accommodation.
UJ contracted three privately owned payment service providers to facilitate rental payments to landlords — privately owned student accommodation providers (POSAPs). However, three such property owners told Business Day they last received rental payments for NSFAS-funded students in May, with more than R10m outstanding.
Herman Esterhuizen, manager for media liaison and strategic communications at UJ, said the university uses three service providers: Fundi, Embizo and AESwitch. They are responsible for processing rental payments to POSAPs for more than 18,200 NSFAS-funded students who have selected private accommodation.
These landlords owed money cannot approach NSFAS and have been instructed to deal directly with the university responsible via its third-party payment partners.
The outstanding payments have financial implications for property owners. These include bank penalties for late payment of bonds and City of Joburg municipal rates, which could lead to water and power services being suspended. Other service providers such as security and internet services, as well as property management and maintenance, are also at risk, while students could face eviction in some instances.
“For bonded properties, delayed bond repayments result in banks issuing penalties and taking legal action — and possibly resulting in the building being ceded to the bank,” said Geoff Jardine of Lisam Property, which owns a 550-bed student accommodation building in New Doornfontein.
Most of the students using the building (450) are NSFAS-funded and attend UJ. A further 21 NSFAS students are at Wits and the balance are private and bursary-funded students.
The department of higher education & training has set out minimum norms and standards to ensure student housing at public universities is adequate and suitable. Property owners accredited by universities have to adhere to the department’s policy on student housing.
Rental lease agreements are between the accommodation provider and students. As with normal residential lease agreements, rent is due in advance. Property owners can evict students for not paying rent, though the chances of recouping money owed are slim at best.
The NSFAS-approved monthly accommodation grant is R4,500 per student and covers rent for a furnished apartment, water, electricity, internet and security services.
Financial losses
Jardine said high inflation and interest rates mean it is increasingly difficult to keep up with the operational costs of his portfolio, about 50% excluding bond repayments.
By May 15, Lisam had received R850,000 in total income for 2023, with R6.5m outstanding from NSFAS-funded students attending UJ.
“We are required to make alternative funding arrangements to keep operations afloat — resulting in massive loans to our business sourced from private funders. This is not sustainable,” said Chris Wijtenburg of Flamingo Services.
The company owns Buxton House in Doornfontein, which accommodates 150 students, about 80% of whom are NSFAS-funded. The remainder are bursary-funded and private paying students.
Excluding the cost of borrowing, which continues to rise, Wijtenburg said operational expenses are about 50% of turnover. By May 15, the company has received about R250,000 in total income this year with arrears of about R1.7m due from UJ for NSFAS-funded students and other bursaries administered by UJ Finance.
“We sold one of our buildings in 2022 and used the proceeds to remain afloat. Were it not for that sale we would be insolvent,” he said.
Marcel Maree of KiSS Properties said its building accommodates 180 NSFAS-funded students at UJ and more than 70 bursary and private students. Monthly operational expenses are 25%-30% of rent, and with the last payment made in May 15, it is increasingly difficult to remain in business, he said.
“We are tightly managing monthly costs as best as possible, and also aggressively marketing our accommodation to cash-paying and bursary students with whom we have normal payment terms,” Maree said.
Though some NSFAS students at UJ paid rent for February to May, the majority have not and arrears amount to R2.4m, he said.
Some success
Other landlords, such as Growthpoint Student Accommodation Reit, have been successful in dealing with UJ, and their accounts are up to date.
George Muchanya, head of Growthpoint Investment Partners, said the unlisted fund has dedicated resources for managing accounts where there are difficulties.
“We can confirm that, working together with UJ, our account has been brought up to date. However, we acknowledge the significant negative working capital constraints that landlords suffer as a result of late payments,” Muchanya said.
Growthpoint Investment Partners is an unlisted fund and asset management business of JSE-listed Growthpoint Properties, with assets across Africa, Australia, the UK and Eastern Europe. The Growthpoint Student Accommodation Reit was launched in December 2021 and has more than 7,000 beds in localities including Braamfontein, Observatory in Cape Town, and Pretoria.
For the nine-month period ended March 31, the company acknowledged problems with student accommodation since the NSFAS capped the annual student accommodation allowance at R45,000.
Growthpoint said private sector student accommodation providers and universities in Cape Town, Pretoria and Stellenbosch were negatively affected since rentals in these areas exceed R45,000 annually.
The company said it is implementing several initiatives to reduce the impact of the NSFAS cap, adding that the Growthpoint Student Accommodation Reit continues to attract capital, with a large pension fund having received approval to invest R300m.
Payment process
UJ’s Esterhuizen said NSFAS-funded students who lease private accommodation are required to have full documentation for one of the approved service providers to offer an accommodation allowance. The service provider invoices UJ for the monthly allowance so that funds are available for the student to pay rent — paid monthly to the student’s wallet.
“If the student provides and submits the correct information funds are released into the accommodation wallet within 15 days,” Esterhuizen said.
However, there are a number of reasons for delays including private student accommodation providers not being accredited on time, delays in private providers registering with the service providers, students submitting incomplete documents and capacity constraints due to the registration process being followed simultaneously.
Once the funds are available in the student accommodation wallet, the student is responsible for paying the private accommodation provider.
Asked about outstanding amounts owed to property owners, Esterhuizen said the university holds biweekly meetings with the POSAPs accommodation providers to keep them informed about the payment process.
“To this end, a dedicated email address has been created for POSAPs to submit their queries, which are carefully evaluated to determine where in the process the payment is, and priority is then given to these,” Esterhuizen added.
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