LONDON Driving lessons and iPads are among the gifts developers are showering on students in London to lure them to fill empty rooms after fee hikes and visa curbs threaten to undermine university housing's reputation as a safe property investment.
Carlyle Group's (CG.O) Pure Student Living and Quintain Estates QED.L are among developers who have struggled to fill student rooms in London this year after the British government tripled maximum university fees to 9,000 pounds, triggering a 12 percent fall in numbers from Britain and the EU.
Tighter restrictions on the number of non-EU students in Britain have further dampened demand, property experts say.
"There's an empty room in my flat right now and there are empty flats in the building," said Varala Maraj, a 20-year-old student from Trinidad and Tobago who in September moved into a five-bedroom flat in a 20-storey block of apartments in Wembley, north London, owned by Irish developer O'Flynn Group.
"They started an iPad promotion when they wanted to rent rooms and they still have rooms available," she said. "I wasn't given one because I applied before the promotion."
While investors have been wary of offices and shops outside the most profitable locations in Britain, investment in student housing has risen from 350 million pounds in 2009 to some two billion pounds in the first nine months of 2012, data from CBRE Group (CBG.N) showed. Investors are attracted by high occupancy rates and stable income streams.
Almost half that investment has targeted London, home to top-ranked universities with a large foreign student population, many of whom are willing to pay for higher-end accommodation.
Deals this year include Blackstone's (BX.N) sale of its Nido student housing portfolio to private equity firm Round Hill Capital for 415 million pounds, and Barclay's (BARC.L) sale of a stake in University Partnerships Programme to Dutch pension fund manager PGGM for an estimated 840 million pounds.
In September, the sovereign wealth fund Government of Singapore Investment Corporation set up a joint venture with student housing specialist Unite Group (UTG.L) to target one billion pounds of London property.
Britain is Europe's biggest market by number of purpose-built student blocks with almost 200,000 beds, placing it far ahead o f France and Spain, which have a handful of similar schemes, property consultant Jones Lang LaSalle (JLL.N) said.
Private student housing competes with university halls and the general rental market for students. Rents in London private student housing increased by 7.2 percent between the 2011/12 and 2012/13 school years to an average of 232 pounds per week, almost 40 percent higher than rents in the universities' own accommodation, consultant DTZ said.
For the extra money, perks include flat screen TVs, gated security, Egyptian cotton towels and vending machines that sell freshly-baked pizza.
Hardest hit by waning demand are rooms priced between 200 to 300 pounds per week, which DTZ said account for almost half the 21,897 student rooms in London. Pricier rooms were still being snapped up because of resilient demand from wealthy international students while cheaper property was faring bet t er.
"Normally by now everybody's full," said JLL's head of student housing Philip Hillman. "But there are some student housing developments in London that are not at the occupancy that you might have expected."
It may force new entrants to the sector to think twice about whether they stay, said I an Scott, manager of Quintain's QED.L iQ student accommodation fund.
"We've had a number of people come into the market who are not specialists that have come in because it's a hot sector. It may encourage some of the peripheral guys to back out."
Some banks began to do just that last year. Lenders including Barclays (BARC.L) and the Royal Bank of Scotland (RBS.L) cooled on lending to developers over fees and visa fears.
As well as gifts, other developers, such as specialist British-based student developer Mansion Group, have offered four weeks free rent. It is also offering 12 free driving lessons and is accepting less financially secure short-term tenancies.
"If developers are having to give that rent away, and if you put that into their calculations, then the capital value will have to fall," said Investec property analyst John Cahill.
"And if the valuation of the assets fall then it's less appealing to investors than it was before."
Developers may have little choice but to drop rents next year, particularly in light of the tougher financial climate, said Alan Artus, director of student housing developer Generation Estates, which runs Pure Student Living for Carlyle.
"It's inevitable that a more conservative approach to rent setting will be in evidence," he said.
Others expect the government to relax its stance over the visa curbs and that students will accept the fee hikes.
"Things suggest that it's more of a blip than a long term thing but there are some headwinds before numbers resume to normal service over the next couple of years," said Richard Simpson, Unite Group (UTG.L)'s managing director of property.
"There has been so much talk about what a wonderful sector student housing is," Hillman said. "This is a little reality check for some parties."
(Reporting by Brenda Goh; Additional reporting by Tom Bill; Editing by Jon Hemming)
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