Overseas students boost London lets

Wealthy families of overseas students are boosting demand for prime central London rental properties, choosing to rent rather than buy following tough new government measures to crack down on property tax avoidance.

As well as introducing a new top rate of stamp duty at 7 per cent for all homes over £2m, the government recently brought in a 15 per cent levy on residential properties costing £2m or more and bought through a company structure.

Overseas buyers with children at university in the UK often purchase property for them to live in while they study, through company structures. This is typically to preserve their anonymity, as well as reduce tax bills. But many are now renting, rather than buying, prime property.

“The uncertainty created by tax changes in the Budget is fuelling a surge in overseas students renting out property in prime central London as opposed to buying,” said Mark Harris, chief executive of mortgage broker SPF Private Clients.

“Many wealthy parents who would normally have bought an apartment for their children to live in during their studies are delaying a decision until the tax position is clearer, and renting in the meantime. This is having the effect of pushing up rents and leading to a scarcity of property for rent at the top end.”

W A Ellis also reports increased interest in rental properties worth up to £2m from overseas investors. “We have been absolutely inundated with high net worth student enquiries from those wanting to get settled prior to the new academic year,” said Lucy Morton, senior partner and head of lettings at W A Ellis.

“They are coming from all around the world and their tenancies are generally being guaranteed and paid for by their parents who are paying up to £1,000 per week.”

The most popular areas in central London for overseas students are locations close to universities, such as Knightsbridge, favoured by Russian families, and Belgravia, one of the top locations for Chinese students.

Mark Howell, head of riverside lettings at Knight Frank, says there has been a 28 per cent rise in the student lets on their books this year compared to last year. He also added that the proportion of Chinese students seeking accommodation has doubled, from 20 per cent of Knight Frank’s overall students, to 40 per cent. The number of Russian students has doubled from 10 per cent to 20 per cent.

“The majority of these overseas students will tend to pay rents of between £350 to £750 per week, but some will pay up to £10,000 a week to secure the most sought-after properties,” he added.

Joanna Bishop, from independent buying agents Property Vision, said the core international students – notably from the Middle East, Russia and Asia – are drawn to the newer, secure, landmark buildings that have been developed in Knightsbridge, Mayfair and Kensington over the past 10 years.

For the money they are willing to pay, they want modern, stylish apartments in a central location. Guy Bradshaw, in the Mayfair office of Savills, said: “Students and their parents are looking for the best and the bigger the budget the more particular they are wanting contemporary decor, state-of-the-art technology and air-conditioning.”

Overseas students make good tenants for UK landlords. “Overseas students can be lucrative for landlords,” said Javier Carrillo, partner at LDG.

“Unless a foreign student has a relative living in the UK who can cosign their tenancy agreement, they must pay a minimum of six months’ rent upfront. This translates to 90 per cent of wealthy students paying their rent upfront.”

Student accommodation developer, Vitastudent.com says potential landlords should watch for properties that only have one year’s rental guarantee.

Listen to Lucy Warwick-Ching talk about the prime London student lets market on the FT Money show

Experts say apartments that are sure to generate strong rental returns will have at least two years’ rental assurances, because the developer can be certain the properties will rent out.