Plunging into the student real estate sector

student housingBritish mortgage experts are arriving at a conclusion that the most profitable housing rent in the country accounts for students. The average yield of this property is 12% per annum. This high figure is due to several reasons. Firstly, as in other countries, British students often rent rooms, not entire apartment. The owner gets more profit when providing each room for rent separately. Secondly, in the UK there’s too few student dormitories to accommodate everyone. For example, in 2010 to 490,000 of beds at the dorms were provided to as many as 700,000 of students. Thirdly, education in the UK is becoming increasingly popular among foreigners. The number of international students increases year after year, so the demand for housing rental grows accordingly.

The most popular cities for students remain to be Durham, Cardiff, Birmingham, Liverpool and Nottingham, all of the above having the same feature – a relatively low cost of housing at a high yield. In the past few years the industry is booming: according to CBRE’s, in 2011 sales in this segment of the UK market amounted to £863ml., while in 2010 this figure was equal to £93ml. In 2012, the growth continued and exceeded £1bn.

The total investment in the student’s real estate sector in the UK has exceeded £2 billion in the second year: according to the agency CBRE in 2013, the size of investment in the sector of commercial real estate has reached £2.1 billion. Unlike most other real estate sectors in the UK, student apartment sector is experiencing an investment boom in the regions outside of London. Thus, from the total amount invested in the sector in 2013, 88% of the share accounted for objects outside of London – 30 regional centers of the United Kingdom. Such cities as Coventry, Swansea and Manchester have received the greatest share of investment, because of the opportunities for implementation of large-scale projects with high rental income and strong demand for student housing for rent.

According to the reports of conveyance solicitors, over the past 2 years there was a significant increase in the number of foreign investors attracted to the sector. So, while in 2011 the share of investors from abroad accounted for only 23%, then in 2013 already this mark has increased up to 52%. The most prominent group of investors includes the residents of the United States. For example, the Greystar Company, one of the largest operators of student property and homes for rent in the United States, has acquired a portfolio of student hostels in England estimated at £310ml.

The basis for the increased interest in the sector of student hostels in the UK is the fact that the current market cannot satisfy the demand to the full extent. Despite the skyrocketing tuition fees, we see an increase in the number of students in the UK, and in particular, students from abroad. Those foreign students prefer to live in comfortable complexes of student hostels, rather than in the private sector. For example, in the 2013/2014 academic year, the number of foreign students admitted to British universities accounted for 61.985 individuals, the highest rate since 2010. As a result, the percentage of load on many hostels exceeded 95%, guaranteeing stable income and attraction of new investors in the sector.

The principles of local tax budgeting in the UK

uk local taxesThe local government financing is an important part of the national financial system, even though these bodies largely act as her separate units. In 1988, for example, local authorities have spent £45bn., which accounted for 25% of the gross domestic product of the country. Since the early 50’s of the 20 century the financial resources of local authorities grow mainly due to government subsidies and an increase in debt to various government agencies and corporations.

A significant part of the revenues of local budgets is generated by local taxes. In the United Kingdom there are no special taxes for various territorial communities: the county and the new unitary formation collect the same amounts of taxes. Over the past two decades, local taxes have undergone a number of reformations, which served as the basis for serious political problems in the country. Thus, a traditional housing tax (domestic rate) was replaced in 1989-1990 by the local tax (community charge), immediately nicknamed as poll tax, since the same amount was due to be paid by each adult living in the territory of the local community. The introduction of the poll tax was a kind of a national scandal: protests by local councils, residents, opposition campaign in the media led to the fact that in 1993 the tax was replaced by a new local tax (council tax). Like the two previous ones, the new tax actually represents the tax for accommodation, it is paid by every adult citizen of the local community. The tax base is the value of the property used as a dwelling; and all property is divided into eight categories, depending on which is determined by the size of the tax and a specific dwelling. At the same time, a significant role is played by the number of people living in the premises: so if the housing serves as a home for just one person, a 25% reduction from the total amount is granted.

The state of affairs around real estate

The tax on non-residential premises (non-domestic rate) up to 1989-1990 was self-assembled and installed by local councils. In accordance with the bill of local finances, the input and the poll tax, the distribution tax on non-residential premises became centralised: it is collected within a special fund that is allocated by the Government between local communities, depending on the needs and the fiscal framework of the latter. Thus, the local tax is used for leveling income communities, occupying a middle position between the tax and the government subsidy. In addition, local councils may collect fees for the consumption and payment for services rendered, as well as take out loans,  the local council applying for a loan shall enter into force only after approval by the Minister for local government. What is important, there’s no tax on acquiring property, although there are certain obligations for the buyer, for example to service the deal with the help of conveyance solicitors on an obligatory basis, the buyers are not required to make large payments.