Cashing in on student housing

by Steve Van Derodar

It is June again. College days are probably the most memorable days of one’s academic life. While studying in Cebu City, I didn’t need to have student housing as I live in the city but there was a time during my review for my licensure where I had to rent an apartment for at least three to six months. The year before that, I almost spent the whole year renting as I was assigned to different parts in the Visayas and Mindanao for clinical internships to different hospitals and clinics. Most of my classmates, who were from out-of-town, had to rent an apartment with roommates, dorms, and boarding houses their entire college years to get decent housing.

For many parts of the country, I suppose Metro Manila as well as Cebu, Baguio, and Cagayan de Oro Cities, are few of those with the largest enrolled students. Statistically, these are key areas for the student housing sector. For years, housing demands among students posted continuous growth. We have also an increasing number of foreign students largely from South Korea, India, China, and Iran.

When I decided to work in Manila late in 2003, I first stayed a few good weeks near De La Salle University-Taft before moving to Makati and I saw how the student accommodation investment opportunities are abundant. The whole stretch of Taft is just as lively, where colonies of students enriched the academic hubs of Metro Manila. The continuous area alone is where you can find DLSU, St. Scholastica’s College, Philippine Women’s University, University of the Philippines-Manila, Arellano University, St. Paul’s University, and a lot more. Collectively, they are called University Belt, where clusters of academic schools are concentrated in one area. Another one is found where University of Santo Tomas, University of the East, San Beda College, and Far Eastern University are located. Near Katipunan, we also have the University of the Philippines-Diliman, Ateneo de Manila University and Miriam College, and many more. Among these higher education schools, Sto. Tomas University topped the list with 28,000 enrollees in 2018.

In Southeast Asia, the Philippines is considered one of the best in the region in higher education due to our over 1,7000 tertiary-level colleges and universities taking care of more than 2.5 million students. A matter of market trend, buildings within close radius sprung in response to high student accommodation demand for micro-condo, dormitels, mid-rise apartments to high-rise condos. Some condo buildings are entirely dedicated for the students. Vista Residences by Manny Villar have pioneered these types of investment buildings in what they call a string of educational institutions or the University Belts. For Vista Residences, the successful and highly viable University Series is a selection of value priced mid- and high-rise towers strategically located within university clusters in the country’s top cities.

I will focus my discussion on the condo market. There are few other accommodations available but what is so fantastic with these developments is the fact that for investors, it is giving them a good tenant base that could rent averagely for Php 15,000 thousand and up. For investors, it means it pays the mortgage plus an income. These developments can give you a clever illustration of a cash flow from rental income minus expenses. The annual cash flow is achieved by monthly cash flow times 12 months and annual cash flow divided by total investment would result in cash on cash return of investment (ROI). In simple mathematics, for illustration purposes, most likely out of your average Php 15K rent income minus expenses of an estimate Php 10K that largely go to mortgage, you’ll make Php 5k a month x 12, would mean around Php 60K of annual cash flow divided by Php 450,000 on down payment cost and other purchasing costs, an estimate of 13% is the cash on cash ROI. Figures are just estimates but can illustrate investment figures.

I have a few clients who chose to put their investments in the student housing sector and are quite satisfied with their business intuition. They bank on what is called a necessity. As a sign of their adherence to the booming market, some of them have purchased multiple units in cashing in on the student housing.

There is really an opportunity with the student accommodations as parents provide monthly checks, customarily all paid at once for the year. Of course, some of them are using their parents’ condo units which were bought for them. You can say that it is not for all as it becomes pricey but there is really a significant fraction of those who believe in safe and secure housing. We must remember that condo buildings offer the utmost security providing tenants peace of mind and quality of accommodation.

Due to my global acquaintance in real estate trends, I do receive regular emails on subsector reports and found that student housing is one of the steady market segments supporting a demand and providing sound profitability.

You could be the very person intrigued with this fact and is keen on testing the waters. There is cash in the student housing.

(Stevenson’s experience in Philippine Real Estate spans more than 15 years. He has been involved in horizontal, vertical, vacation and commercial properties. He has worked as an International Property Specialist to markets in Asia, Europe and North America with Ayala Land, Federal Land and Century Properties. Through PhilHouseHunters, he offers real estate investment opportunities, marketing, and consultancy with a key focus to Metro Manila and Mega Cebu areas. Visit www.philhousehunters.com. Email at derodarsales@gmail.com.)

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