By Lee Boyce
PUBLISHED: 04:32 EST, 9 October 2013 | UPDATED: 05:15 EST, 9 October 2013
The words ‘luxury’ and ‘student accommodation’ are not two that instantly gel. However, one student home developer has just started its sixth upmarket project in two years offering investors a meaty return in the process.
Vita Student has launched a new £17million student accommodation scheme in Exeter, Devon, which promises investors a seven per cent yield guaranteed for five years – a figure considerably higher than the current average buy-to-let yield.
So is an eye-catching offer like this worth a look, what exactly does a guaranteed income return look like and what are the catches? Lee Boyce takes a look.
Student living: The Exeter accommodation was launched to investors last Monday and has sold half of its apartments
The new Vita launch comes hot off the heels of three projects in Liverpool and one in Manchester and Bristol, bringing the total number of apartments it has in its portfolio to nearly 1,000.
The Exeter Portland House development – which will have 161 apartments available for investors starting from £77,950 – is due to be completed in time for the 2014/15 academic year. Within a week of launch last Monday, 55 per cent apartments had been sold.
Vita Student’s previous launch – Colston Avenue in Bristol – saw 132 apartments sell-out within seven weeks.
Its first project, The Chapel in Liverpool, was launched in March 2012 and was sold out by June 2012. The 67 studio apartments, which started from £57,950, have recently taken the first of its influx of students. Weekly rent starts from £119, with bills included.
All this has come as the student property market has roared ahead.
Investment in the student property sector is at its highest point, according to global estate agent Jones Lang LaSalle, with £2.7billion spent in the market in 2012 – a 125 per cent increase from 2011.
This could be looked at from two opposing perspectives, either investors are cottoning on to a lucrative and growing success story, or a bubble is forming.
Luxury: The student rooms in Exeter will come equipped with a high-end finish and fast internet connection
Trevor Moore, CEO of Vita Ventures, said: ‘Investor requirement for student property like ours is at an all-time high.
‘We are able to deliver such a high yield by driving efficiencies at every level of the construction and operational process while in turn generating high rental returns from students who are willing to pay a premium for the facilities and level of service we provide.
‘The rate at which all our projects have sold demonstrates that our model is successfully addressing the market demand.’
How guaranteed is the rental yield?
The company promises a seven per cent yield on the Exeter project and up to nine per cent on others for a period of five years.
But how strong is that promise? The yield is guaranteed by the company only. The firms says it can guarantee the yield because of a ‘robust model’, but many other property developers in the past have said the same thing, especially before the great recession of 2008, and investors found some of those promises fell down when developers went under.
When it comes to any guarantee, you always need to evaluate what is backing it and quite how strong that pledge subsequently is.
For example, this is not a guarantee like those on other financial products. Regulated financial products, like savings accounts, are covered up to the value of £85,000 by the Financial Services Compensation Scheme in the event the provider goes out of business.
Nor is it up there with those judged to be the strongest of guarantees, such as the return on government bonds – gilts – which are backed by the state and will only fall away if the UK defaults on its debt.
The Vita guarantee relies on the company remaining solvent. If troubles did arise, the investor would still own the property, but then finding new tenants would become their responsibility and they may find rents on the open market are lower and do not deliver the returns promised here.
Many investors were caught out by this in the past, especially those who bought into new-build buy-to-let flats before the property crash.
Potential investors should always look into the finances of a company offering any deal before taking the plunge and make their own decision on how guaranteed a guarantee is.
What happens after five years?
The guaranteed yield ends after 5 years. From then on you will get whatever is left from the rent, which Vita sets, after the company has taken its service charge.
On a property worth £89,000 in Exeter, the annual management and service charge is £2,698 – more than three per cent of the purchase price.
This is important to bear in mind if you plan to sell after five years. Whoever you want to sell to will have to sign up to this arrangement, agreeing to give up a large chunk of their rental income in the process.
What do investors have to pay out?
- There is a small reservation fee to secure the property – this fee is deducted from the total cost.
- You pay a 25 per cent deposit within approximately 30 days of reservation.
- You pay a further 25 per cent payment approximately half-way through build.
- You pay a final payment on completion of the development.
What Vita offers students and why it reckons Exeter is worth buying
Exeter has recently experienced a huge growth in student numbers which has led to a major shortage of suitable accommodation, Vita Student says.
Students living at Portland House will benefit from fitted kitchens, en-suite bathrooms and a space-saving foldable double bed with integrated sofa.
The apartments also include free high-speed 100MB broadband, wi-fi and flat screen smart TVs as well as access to communal areas such as a study hub and leisure facilities – a far cry from the dingy vision that student accommodation typically brings.
Student numbers in Exeter have swelled to 19,000. This growth can be attributed to the university rising rapidly in the UK league tables culminating in it being named as The Sunday Times University of the Year in 2013.
The properties are all managed by Vita Student through a specialist management arm. This, it says, helps reduce costs for investors and gives students the best possible experience.
It adds that the minimum yield of seven per cent for five years on the Exeter project that it offers investors can be guaranteed because it is based on an extremely ‘robust model.’
Vita Student was founded in 2012 by luxury developer Vita Ventures which has been acquiring land at Russell Group university cities across the UK.
Vita Ventures was founded by the UK’s largest seller of overseas investment property, Select Property, together with luxury homes developer, Huntsmere, combining the expertise of both.
There are several other cities in the pipeline and it is specifically targeted Russell Group university cities such as Edinburgh, Cardiff, Southampton, Nottingham and Sheffield for its next projects.
WE LOST MONEY IN THE PROPERTY CRASH BUT INVESTING IN STUDENT HOMES STILL LOOKED ATTRACTIVE
Bhavesh Chande, an Independent financial adviser and his brother Chetan, a doctor, are both based in Greater Manchester and have been investing in buy-to-let and off-plan property in the UK and abroad for many years. In 2013 they wanted a new investment and choose Vita Student’s 279 unit project in First Street, Manchester, in February 2013.
When Bhavesh and Chetan came across the project, the business was offering investors the opportunity to buy fully-managed studio apartments from £77,950, with an assured rental yield of nine per cent for two years.
Bhavesh and Chetan quickly decided to buy two properties on the top floor of the building.
Bhavesh explains: ‘We’ve been investing in different buy-to-let projects in the UK and abroad together for years so we were really surprised when we found such an ideal investment opportunity so close to home here in Manchester.
‘We had lost some money abroad during the property crash in 2008 so in 2013 we were more cautious about where we were investing and the First Street development seemed to fit the bill perfectly. Even though it is an off-plan scheme the completion date is next year which keeps the risk to a minimum.
‘As an IFA I know what to look for when it comes to investments so we did a lot of research into the student property market and were amazed at the returns it can generate.
‘The guaranteed yield for the first two years is an added bonus and really gives us peace of mind that we’re making a sensible investment.
‘My brother and I both went to Manchester University so we know the area well and we have no doubt as to whether the development will be popular with students. We’re confident that the location and quality of the finish means that filling our studios will be no problem.
‘Our two new apartments are certainly a world away from the shoebox student rooms I stayed in during university.
‘We’re looking forward to seeing the project completed next year and seeing our returns. If all goes well then we’ll definitely be building a Vita Student portfolio with apartments all over the UK.’
Be cautious when buying off-plan
Buying a property before it’s even been built requires faith. But more and more of us are doing it.
Estate agency Savills reports that 80 per cent of its new-build sales are now ‘off-plan’.
DO YOUR RESEARCH: OTHER VITA STUDENT OFFERINGS
- The Chapel in Liverpool: Launched in March 2012, sold out by June 2012. 67 studio apartments. Ready for 2013/14 academic year.
- Tinlings in Liverpool: Launched in June 2012, sold out by November 2012. 132 studio apartments. Ready for 2014/15 academic year.
- Crosshall in Liverpool: Launched in December 2012, currently 95 per cent sold out. 158 studio apartments. Ready for 2014/15 academic year.
- First Street in Manchester: Launched in late February 2013, sold out by July 2013. 279 studio apartments. Ready for 2014/15 academic year.
- Colston Avenue in Bristol: Launched July 2013, sold out by early September 2013. 132 studio apartments. Ready for 2014/15 academic year.
- Portland House in Exeter: Launched in September 2013, currently 55 per cent sold out. 161 studio apartments. Ready for 2014/15 academic year.
And Robert Fraser, of London estate agency Fraser & Co, says: ‘Some people had their fingers burnt buying off-plan during the downturn.
‘But if you’re confident in the developer, scheme, location and local market, it can be a great way to buy.’
It pays to be cautious. After the credit crunch, some people who’d bought apartments off-plan found the value had fallen by up to 35 per cent when they came to complete.
Kate Faulkner, at advice site propertychecklists.co.uk, says: ‘If you are buying off-plan in a rising market, you could get a bargain. If you agreed a price for, say, £150,000 and two years later it’s worth £160,000 or more, you’d be happy.’
But buyers should ensure the developer is reputable and have insurance so that if they go bust, you will get back your deposit.
Use an independent lawyer to check the paperwork.
Find out when the rest of the development will be finished, otherwise you risk living in a building site for the first few years – This is Money has listed current Vita Student offerings and planned finished dates to the right.
Under the Consumer Code for Home Builders, you have the right to withdraw from a purchase and receive a full refund if the completion date is unreasonably delayed by more than six months.
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