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Better than Real Estate - 30.08.2019

Real estate is a well spoken of class of assets because:

  • it is an asset that generates regular rental income;
  • in addition, there is a chance that over time the market price of the object will increase;
  • real estate allows investors to survive difficult times as it eventually retains the real value of money after long periods of inflation and economic downturn.

Therefore, real estate is a must have asset for any investor.

Large fortune from scratch is also often made in real estate.

However, real estate markets are currently experiencing hard times:

  • the most popular investment real estate markets - New York and London - have stagnated for the fourth year: London real estate is suffering from uncertainty with the Brexit and the weakening pound, concern of New York real estate investors is associated with the uncertain future of the US economy and the unpredictability of the current US president;
  • rental income in the largest cities in the world rarely exceeds 3% per annum;
  • Citizenship programs for investments offer illiquid objects at inflated prices, thereby undermining faith in real estate as an asset class;
  • in some large cities, for example, in Hong Kong, there is open talk about the formation of a bubble in the real estate market;
  • a possible recession will lead to a further decrease in demand for real estate and prices in the markets should go down.

Of course, all the best qualities of real estate as an investment asset - the ability to bring passive income and save the value of money during periods of cataclysms - remain with it. However, in order for real estate investments to be profitable now, investors must carefully approach the choice of objects. And at the same time, still be prepared for the fact that in the event of serious economic upheaval it will take a very long time to get profit from the investment.

Thus, it seems that it is almost impossible to reduce the risks of real estate investments.

Nevertheless, we were able to solve this successfully.

We began our search for a solution by analysing how rental demand changes in times of crisis. We noted that at such moments demand goes one step down: in view of declining (and continuing to decline) incomes, people tend to choose more budget accommodation options.

As a result, the demand for the most expensive housing may “die”, while affordable housing will enjoy increased popularity.

This observation makes us pay attention and additionally study those groups of the population that form the demand for the most affordable housing.

As a rule, these are those who are just starting their independent lives - young people and young families, as well as those who are finishing their preparations for becoming independent, in other words, students.

And here the most interesting part begins: it turns out that the number of students in the world is growing steadily regardless of the economic situation. Even more interesting is the fact that during the time of the economic downturn there is an additional demand for education: people improve their own qualifications in order to remain competitive in the labour market and maintain chances of increasing personal income even with a decrease in the general level of wages.

Many people prefer to study in other cities and even countries. Due to the fact that during the training period, earning opportunities are significantly reduced, the priority for students is the cheapest housing. For the sake of cheapness, students agree to share accommodation, and facilities, like bathroom and kitchen, with other students. As a result, student accommodation provides the maximum density of tenants and the maximum return rate from rental.

Surprisingly, it is student dormitories (and not at all elite objects) bring maximum income to real estate investors.

Those who specialize in student dormitories know how troublesome is to run this business. Therefore, with all the potential attractiveness of the market, the number of accommodation facilities for students is extremely small: in the UK no more than 13% of the total number of students live in hostels, in Japan - less than 1%. Needless to say, that, with increased demand for places in dormitories, many owners of cheap housing do not care about maintaining quality.

Therefore, the one who offers the market a modern product wins twice – in terms of money and in terms of customers loyalty.

Fortunately, experienced student housing managers have expanded their field of activity in recent years and engage in dialogue with interested investors, creating specialized real estate investment funds. All objects of the fund are selected from the point of view of attractiveness of use precisely as housing for students.

The fund is not tied to any particular country: its money is placed in student facilities in the UK, Ireland, Australia, the UAE, and Japan. Since rental income comes in different currencies, the fund is balanced in terms of currency risks.

The fund’s profitability chart for 10 years is an almost perfect straight line.

Perhaps, due to the specifics of its constituent entities, the fund has not received some income in the wake of market growth. But, more importantly, the negative situation on the real estate market in London and the sharp devaluation of the pound in 2016 did not affect its performance in any way.

There is a simple explanation for this.

From a financial point of view, managing a student dormitory represents understandable financial flows with easily predictable income and expenses. Therefore, the portfolio of student hostels is not just a set of real estate objects connected by a single management strategy, but a business that generates cash flow. The cost of such a business is much higher than the total value of the real estate included in it.

Thus, the student accommodation fund is more than real estate. And this is better than real estate, because due to the additional component, the value of the assets of the fund is practically not subject to market fluctuations.

Investment in student accommodation fund starts at £ 150,000. The maximum participation rate recommended by our experts for individual investors is 15,000,000 British pounds at the end of August 2019.

We invite you to grow your wealth with the global student accommodation fund.

Contact us for more information.

Thank you and see you soon!