The SA student accommodation sector is in a state of crisis. Each year, as the academic calendar begins, we see scenes of students sleeping in libraries and hallways, unable to secure a place to live.
The shortage of student accommodation has reached a critical point, with a supply shortfall estimated at 500,000 beds. It’s a problem that demands urgent attention, and the private sector might just have the solution.
In a recent panel discussion on Classic Business, I had the pleasure of speaking with George Muchanya, head of Growthpoint Investment Partners; Lerato Nage, CEO and technical director at KEA Capital; and Seipati Moichela, portfolio manager for real assets at the Eskom Pension and Provident Fund. The discussion shed light on the dire need for purpose-built student accommodation and the opportunities it presents for investors.
Growthpoint Properties, SA’s largest primary real estate investment trust (Reit) listed on the JSE, has identified a gap in the student housing market. Through its Invest to Thrive brand, Growthpoint Investment Partners is leading the charge, raising R2.5bn from investors to invest in student accommodation so far. According to Muchanya, the demand for student accommodation far outstrips supply, with institutions struggling to meet the needs of a burgeoning student population. This imbalance has created a lucrative opportunity for investors willing to step in and fill the void.
The financial performance of the student accommodation asset class has been impressive. The Eskom Pension and Provident Fund, one of the largest pension funds in SA, has been closely monitoring this sector. Moichela emphasised that the decision to invest was driven by the strong financial returns and the defensive nature of the asset. With annual dividend yields of 6%-10%, and internal rates of return at 12%-17%, student accommodation investments offer competitive returns comparable to other infrastructure projects.
One of the takeaways from the discussion was the importance of public-private partnerships in addressing the student accommodation crisis. The private sector, with its access to capital and technical expertise, is crucial in developing and maintaining student housing. However, government support and policy stability are equally important.
Nage highlighted the challenges posed by the National Student Financial Aid Scheme (NSFAS) and the effect of policy changes on the sector. The recent unilateral lowering of the cap of accommodation allowances by NSFAS from R60,000 annually to R45,000 sent shock waves through the sector. Higher education minister Blade Nzimande stepped in and the cap for metro areas was revised upwards to R50,000. But the whole episode just ramps up uncertainty and highlighted the need for better communication and consultation between the government and private stakeholders.
NSFAS plays a pivotal role in funding student education in SA, but its involvement in property management has been less than effective. The scheme, designed to provide financial support to students, has struggled with administrative inefficiencies and policy missteps. Nage pointed out that while NSFAS’s intentions were good, the execution has been lacking. The private sector can play a vital role in bridging this gap, providing the expertise needed to manage and develop student accommodation efficiently.
NSFAS has been plagued by mismanagement and corruption for years and given that the experienced Sizwe Nxedlana threw in the towel after two years trying to fix its broken systems and navigate the toxic politics, it’s going to require a Herculean effort. But Nage, who was formerly CFO of NSFAS, believes that the new administrator, Freeman Nomvalo, is at least willing to consult with the right people in his attempts to turn NSFAS around, which is a start. But it will require political support.
The potential for growth in the purpose-built student accommodation sector is immense. Growthpoint’s pipeline includes plans for an additional 10,000 beds over the next few years, a significant contribution towards alleviating the shortage. This expansion requires collaboration with institutional investors, such as pension funds, that seek both financial returns and social impact.
The student accommodation crisis is not an insurmountable problem. With strategic investments and robust public-private partnerships we can provide students with the safe, conducive living environments they need to succeed. This will not only improve educational outcomes but also contribute to reducing inequality and promoting economic growth in the long term.
Nage says the sector will lobby the finance minister for special legislation that governs property rebates for the purpose-built student accommodation sector to encourage investment, as well as providing certainty regarding the investment returns.
And, Nage says, the industry will request special tax relief for the sector. “That has the potential to alleviate strain on the affected stakeholders, in so far as the funding cap is concerned.”
NSFAS is too important to fail. It is crucial that government and private sector stakeholders work together, ensuring policy stability and clear communication, or else we are setting large swathes of our student population up to fail.
The crisis is a clear call to action.
• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at Badger@businesslive.co.za.
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