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Why Not Buy A Student Flat In Dunedin?

Setting aside the stereotype, the Otago university student flats market is a winner for investors.

By: Property Investor Team

1 April 2015

Who would put up with the fires, bad behaviour, parties and damage to property caused by students in Dunedin? The reality is far from what you see on the news. These are isolated events, caused by the minority of what is a larger group of well-behaved, law-abiding students.

The University of Otago student market is both nationally and internationally recognised as an established, proven investment vehicle for investors who require full-year, fixed-term tenancies and no vacancy factors.

The essentials for any rental investment are all there: A confined geographical area, with very few opportunities for increase in the number of flats; a wide range of rents from the worst run-down property to the newest purpose-built accommodation – giving owners proven stakes in the ground to improve towards increasing their cash flows, operating yields and ultimately, capital gains (often in a very short time-frame); and an over-supply of tenants (students).

To be successful in investing in student flats in Dunedin, it is essential to be familiar with room rates in flats, where students will want to live.

Less Demand

In 2005, to make life easier for investors (and ourselves), we established what we now call Prime Campus. Beyond Prime Campus is Fringe Campus and having a slightly longer walk to class, exhibits lower rents and higher sales yields. Rents are slightly lower, through less demand from students. Within the Prime Campus quarter, we have 2,045 properties rented to students and owned by 876 landlords.

Around 100 more homes are still privately occupied. This is unique in New Zealand, providing students with a village-like atmosphere and only a few minutes walk to faculties, other flats and central Dunedin.

Add to the mix a ready supply of tenants (to a large extent Government-funded) and you have the essential ingredients for a successful investment. With 18,875 (2013) equivalent full-time students attending Otago University, plus a further 4,500 (2015) at Otago Polytechnic and a conversion factor of 1:11, there are 25,700 students sleeping somewhere in Dunedin.

Beyond prime campus is fringe campus and having a slightly longer walk to class, exhibits lower rents and higher sales yields.

Of course, not all go flatting or even want to live on Campus but our own inquiries indicate there are more than 16,300 students who do want to flat somewhere. The Prime Campus area comprises 9,290 beds.

In relation to the number of properties sold, this is a tightly held market, with an average of 64 sales a year over the last six years – 3.1% of Prime Campus flats. Conversely, 96.9% are held.

Starting Point

Sales yields vary from 6.2% to 8% because of the wide variety of properties. But well-maintained flats demand 6.5% to 7.5% with 7% being widely accepted as a starting point, then move up, depending on the quality of the property.

Rents (or room rates) have moved from $95 a week in 2005 for a then-recent, new, purpose-built, five-bedroom flat to $147 a week in 2015, giving the owner increased cash flow, a higher operating yield and capital gain.

As the most active agents in this unique market, Edinburgh Realty can provide newsletters, dating back to 2003 plus our current listings and sales details.

Check out Edinburgh Realty at www.propertyinvestments.net.nz


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