Tiger parents, whose fierce encouragement of their children’s educational endeavour aims to equip them for the jungle of professional life, need few excuses to intervene in the lives of their young protégés. But increasingly, the chances of investment gains and an additional bolt-hole in a plush US or UK city is providing them with another reason to get their claws out.
US agents report a flurry of apartment-buying by parents looking to accommodate their children through university degrees in New York and Los Angeles, with an eye on foreign visits and a future buy-to-let investment.
The two cities house four of the six most popular US universities for foreign students, according to the Institute of International Education (IIE), a non-profit organisation. New York University (NYU) and Columbia — respectively first and fourth most popular — are a special target for Asian buyers, says Amy Williamson, of Knight Frank’s US residential business.
In the US, international students comprise 4 per cent of the total student population. At the last count, for the academic year 2013-2014, there were 886,000, an increase of more than 8 per cent on the year before. The vast majority are long-term visitors, studying towards an undergraduate or graduate degree, says the IIE’s Sharon Witherell.
Half of the US’s foreign students are from China, India and South Korea; with a quarter of a million from China alone.
A client from Taipei wanted Knight Frank’s Williamson to find a two-bedroom apartment in Manhattan. The couple have a child at Princeton (just over an hour from Manhattan by car) and a second applying to NYU. “The parents are looking for a base to visit, somewhere with investment potential, where the second child can live if he gets into NYU,” says Williamson.
Once upon a time, the place in which to be young and be seen was Greenwich Village, home of NYU and synonymous with the US’s 1960s counterculture movement.
You won’t find much counterculture there now. A survey last year by Altos Research for Forbes magazine found the village straddled three of the 10 most expensive zip codes in the entire country. In the heart of the area and a short walk to NYU, local agent Stribling is selling a two-bedroom house for $5.95m. Nearby the same agent has a two-bedroom apartment on Washington Square South for $2.75m.
Spiralling prices may bolster the investment case, but buying from abroad is far from simple. Many of the older buildings in New York are co-operatively owned; buyers purchase a share in the company that owns the building of which their flat forms a part, and then lease it from the firm. Members frequently impose requirements on other owners, such as no subleasing — this can be a problem for foreign owners seeking rental yield when their children graduate. That is not the only hazard. If you are a foreigner, owning a home in the US means navigating a web of local, state and federal taxes.
In New York, Savills estimates that owning a $2m property for five years will cost 4.3 per cent of its value in taxes; for a property of equivalent value in London the figure is 0.8 per cent. While buying is cheaper in New York, higher agents’ fees mean it is costlier to sell in the city.
Asian investors like to use a small apartment bought to facilitate their child’s education as a testing ground. “It’s an excellent tool for them to explore the market and place money in the US before they buy larger places for themselves,” says Kirk Henckels, director of Stribling in New York.
Several of his clients who started with a $1m one- or two-bedroom flat near Columbia or NYU are starting to make larger purchases. Some buyers are gambling on their child’s academic prowess by investing in properties before they’re offered a place at university, says Henckels.
Those uncertain about which London university their child will end up at might consider a duplex flat in Shaftesbury Avenue, a 10-minute walk to either King’s College London or the London School of Economics and Political Science, on sale with Savills for £3.75m.
They should proceed with caution. Factors driving student-housing prices, such as the proximity to universities and the supply of alternative student housing, are different from those driving other property investments.
In London, purpose-built student accommodation is seeing a surge of investment. In the first five months of this year, this amounted to £4.2bn, according to Savills — 70 per cent more than the sector attracted for the whole of last year.
This is driven in part by the news that, from the 2015-16 academic year, student number caps will be removed and universities will be able to recruit as many students as they can educate.
Buyers in prime London should be particularly wary. The flood of investment has pushed up prices, says Savills, without an equivalent increase in rents, meaning that yields (the rental income expressed as a proportion of capital value) have fallen to sub-5 per cent in these areas.
Rents may be rising slower than prices in prime London, but student accommodation across the UK is getting decidedly swish. Regardless of protestations that things were “different in my day”, parents are willing to spoil their children, agents say — especially if they are planning regular visits.
“Parents often pay a premium to buy beautifully refurbished apartments and this feeds value up the market,” says Andrew Perratt, Savills’ head of residential in Scotland and northern England. The wealthiest foreign students favour places in Mayfair and Knightsbridge, where typical rents hit £72,000 per year. The first of five redeveloped flats in Fountain House, on the corner of Mayfair’s Park Lane, was rented out this month to a 21-year-old student from the US. The two-bedroom property will cost £130,000 per year but comes with a walk-in dressing room, a designer kitchen with Miele appliances and views over Hyde Park. The area is popular with oligarchs’ offspring, says Jayne Weldon of local agent Wetherell, especially fashion students, who like living above the boutiques on Mount Street.
Foreign students comprise half the total student population renting in inner London, according to agent EJ Harris. Most pay about £28,800 a year, about £2,000 more than the UK’s average annual wage, to stay in typically two-bedroom apartments in South Kensington, Shepherd’s Bush or Bayswater. All this is big business for the UK. The higher education sector’s export earnings have been estimated at £10.7bn in 2011-12, most coming from the fees and living costs of international students, says Gareth Morgan of the Universities UK advocacy group. “It is an export industry in which the UK excels.”
The end to caps on student numbers should see foreign student numbers grow. Last year, 310,000 non-EU students were enrolled in UK universities — or 13 per cent of the total student population; a further 5 per cent come from beyond the EU, according to the Higher Education Statistics Agency (HESA). China, with 87,895 incoming students, provides the bulk of them. India, with 19,750, has seen applications drop 49 per cent over the past two years, deterred by the rhetoric of UK immigration policy and a perception that getting student visas is harder, says Morgan.
The property rush is not limited to London. Parents in eastern England are buying flats in Cambridge with an eye to move in when their children graduate. “They are typically in their fifties and sixties, have a connection to Cambridge and plan to sell the family home and move in themselves,” says Ed Meyer, of Savills’ Cambridge office. Savills is marketing a Grade II-listed house for £2m in the heart of the city.
Recent research from property website Zoopla found that Edinburgh provides the UK’s best returns for buy-to-let investors, while Dundee, Aberdeen and Glasgow — all sites of major Scottish universities — are among the top 10 cities for yields.
Savills’ Perratt says buying a two- or three-bedroom flat for a child at university is most common in Edinburgh, St Andrews and York. Parents tend to buy at the end of the first year and sell three or four years later. In Edinburgh, near the University of Edinburgh, Savills is selling a four-bedroom flat in a development that is popular with Chinese buyers for £870,000. A large Georgian townhouse with a garden in Edinburgh’s New Town area is on sale for £1.8m through Knight Frank.
The temptation to indulge a child with palatial digs can backfire. Savills’ Jamie Macnab recently sold a house by the sea in St Andrews, home of the ancient Scottish university. The idea was to give the buyers’ daughter a place to live during her degree, while providing access to the Royal & Ancient Golf Club for the father. “But the parents got so carried away with the renovation it’s unlikely to be ready before she completes her studies,” he says.
Photographs: Getty Images; Alamy
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