If there’s one certainty regarding events that will unfold in South Africa in 2017, it’s the issue of university fees. As the country went on holiday in mid-December, some universities announced hikes in tuition fees. Fees Must Fall activists immediately threatened protest action when the university academic year resumes in February. If the events of 2016 are anything to go by, state universities will be scenes of protest and even violence. There are no easy solutions to the issue of university fees and the various stakeholders seem no closer to finding a solution than they were when the issue first burst on to the scene. For any University student and their families, 2017 will be a challenging academic year. The threat of a disrupted year looms large. Universities will battle to survive financially and will have to make significant cuts to their budgets, which may prejudice their ability to maintain their standings as world-class teaching and research institutions. Doubts will emerge regarding the sustainability and credibility of South African university degrees, which will weigh heavily on the minds of many parents. What options are open to South African students to study abroad? David O’Sullivan spoke to Arran Kerkvliet, Investment Director of One Touch Property, a specialist student property broker in the UK and explored how to create a financial plan to fund a child’s overseas university costs.
This interview is sponsored by One Touch Property. Arran what is the appeal of the UK university, is it a viable option for South Africans?
Yes certainly, I do think it’s a viable option. Obviously the students have to qualify and get the right marks and so forth, but the UK has been the most popular destination for overseas students, with 18 of the top 100 world universities located in the UK and obviously with English being the first language, that’s quite suitable for South African students. There are 430 000 overseas students in the UK at the moment and obviously, the pull is not merely for studying, but really the business contacts and the potential to create a new lifestyle and move to the UK.
One of the biggest problems for South Africans is that they’ll be paying in Pounds. How costly is it to study in the UK?
It is rather costly. You’re typically looking at £27,000, which is an eye-watering R430,000 and the bulk of those costs really are made up of tuition fees, which are around £10,000 a year and £7,000 for student’s accommodation, so obviously as a parent, plans need to be made and set in place to afford the costs.
Right, so it is a large sum, how can South African parents start planning?
Well, I think as with anything, the sooner you start the better. If you’re looking at a three to four-year horizon, looking at things realistically the Rand is probably going to further devalue against the Pound. We just have to look back to 2012 and we can see, the Rand was 12 to one to the Pound and at the height of the Nenegate scandal you’re basically looking at 24 to one, which is a 100 percent increase. Even on today’s rate, you’re looking at R16.40, which is around a 40 percent loss, so the idea really is to start putting the Rands into Pounds straight away so that your costs are aligned within the same currency as the expenses. With the exchange rate being rather favourable in real times right now, it’s a good time to get started.
How can One Touch Property assist people?
Well, One Touch has been trading for eight years and we source high-yield investments, including student property investments and we’ve helped hundreds of overseas investors to acquire properties. We work closely with developers and management companies to provide a hands-off investment where it’s generating net incomes between eight and nine percent, which has been attractive.
What are investors buying, how are they investing in student property, how does it work, Arran?
People, particularly South Africans, want to own something (as you say the sort of bricks and mortar). That’s the beauty of student accommodation. What people are buying is a studio in a purpose-built student block in one of the major student cities like Leeds, Liverpool, Manchester, Sheffield and so forth and what they get for that is actual title deeds registered on the land registry. They’ll own the property and it comes fully managed by a student property company, who will take care of the monthly expenses and cleaning. All the investor has to concentrate on is receiving their quarterly payments, as I said, at a net income of around eight to nine percent.
So people are not investing in a fund, they’re actually buying a piece of property.
They’re actually investing and getting the title deeds. They can actually own that property and choose to sell it at any time and the beauty of it is that for someone looking at their child coming over in the next two to three years, the majority of the investments are off-plan, so there are stage payments. It’s typically a 25 percent investment at the start of the development and then when the project reaches roof height, it’s a further 50 percent payment and the balance is payable on completion. Thinking that with a typical investment of £50 000 to £80 000, that’s quite a lot of Rand, but it can be spread out over about a year period.
This isn’t going to be an option for somebody who’s hopefully trying to send their child to university next year. How much time would you suggest is ideally involved in this type of project?
I think people really need to start thinking about it two years in advance, but in terms of students, the solution is like this; parents can’t really tell straight away which university their children are going to get involved with or qualify to attend, so we do have some student projects which are already completed, but the yields will be slightly lower because someone else might have purchased it before and they might get a seven percent yield. What parents would be looking at this as a solution – even if their kids are studying in the following year – is that whatever their children’s costs are (whichever university they go to) by having a property here, that cost can offset their children’s costs in the city where they’re living.
What are the risks?
With every investment, there is a certain risk, but at One Touch we are specialists, we know the student sector very well, we’ve been working on it for the last five years and we know very good developers. The actual process is what makes many of our investors feel more secure. How that works is that once they’ve received the contracts and discussed it with the solicitors, the funds are sent to the developer’s solicitor and then only released for actual work done.
What I mean is that a contractor may employ electricians, plumbers, builders, and subcontractors and every two weeks they will invoice and then the money’s released. As you can see, through that process it protects the individual and many of our investors will feel the same way once they actually go through the process because they’ll find at the end of the development they’ll have a completed project – where obviously their funds have been used to build the project – but the developer’s objectives are aligned with theirs because they only make their money right at the end.
You say you’ve been working in this UK student sector for five years now and you’re confident that this income then is secure once the property is completed?
Oh yes, that’s right! We have chosen all the very best cities. Of course, you need to look and consider the supply and demand fundamentals in each city. Take Bradford for example, it is a smallish city, does not have a very high-ranked university and many of the students are local – from an international appeal that may not be the right city to invest in. We tend to focus on the bigger cities where there’s a robust demand and we follow the reports by some of the bigger institutional consultancies like Knight Frank and Savills. In that way we’ve secured things for our investors that, come to year four and five when their rental assurance or guarantee has run out, are actually getting higher yields and are able to sell their property for a profit. We’ve had a really good track record on it so far.
Are there any tax implications?
Yes, of course with an income, South Africans need to look at what their domestic income tax would be because the UK has a double tax treaty with SA, but the beauty is with every overseas investor, the first £11 000 that they earn is tax-free. What I mean is that they could literally buy two of these properties with £5,500 net income and not pay any tax. Thereafter, for example, if they had properties with an income of say £15 000, only the difference i.e. £4,000 would be taxed at the standard rate, which is 20 percent, so you’re essentially paying £800 tax for £15,000 worth of income, which is not too bad.
Let’s just go through the math on this one again the. If we’re talking about education costing £27,000 per year, how much are you suggesting people are then putting into property, what is the return on the investment, how does this ultimately result in a child getting a decent education, and its cost-effectiveness for the South African parents?
Well, the objective is, I suppose with any child they’re going to have their living costs, which you have to take out of the £27 000, but what we’ve looked at is the tuition fees, which is the £10 000 and the accommodation fees of £7 000. The best way to do that is to acquire three student properties, which you’re looking at around £70 000 on average. What that would get you is a net income of £5 600 (on one of the properties of £70 000) and obviously, that could be used towards paying those fixed costs… which is the accommodation and so forth.
We’re talking here about student accommodation, it’s all tailored towards the student market, but what about people who are possibly looking at retiring overseas, taking their money, leaving South Africa for whatever reason, maybe to be closer to the children who decide to stay in the UK or leave for political reasons, do you have opportunities, projects for them as well?
Yes, definitely. We have projects which are really focused on a return and giving people some form of security in the future. If people are looking to immigrate there are consultancies who could help them with that, but our recommendation for people that are in South Africa that are champions of business and they’re making good money, it’s not a great thing to immigrate to the UK. What they might want to do (we’re finding a lot of interest from South African investors) is to purchase some sort of insurance and by that I mean potentially a care home or a retirement where they could potentially live in the future.
The beauty of these types of investments (which we have) are very similar pricing as the student accommodation – around £70,000 to £80,000 – but they’re delivering yields between eight and ten percent net and what happens there is the care home operator will run the room and have a lease with the person who owns it. Say for instance someone lived in your retirement flat, they would fully manage that and then once the investor wanted to move in there themselves, i.e. if the political climate in South Africa changed, they could then give notice and actually move in there themselves. We try to cater for both situations, the parents concerned about their future as well as for the students.
Is it too early to ask about the impact of Brexit? I know that there are so many vagaries around Britain leaving the European Union at some stage, but should South African investors be cautious about the impact of Brexit?
I don’t think so. What is Brexit? Brexit is really negotiating terms with someone who you’re already trading with and we’re actually the EU’s biggest trading partner. What really just needs to happen is for them to renegotiate the terms. According to the World Trade Organisation; the net tariffs globally are only two percent. Also, with the UK now being free to trade with anyone, as a global village, it’s very competitive and I think Britain has a good chance of negotiating good contracts.
What a lot of investors, such as Asia, have seen is they’ve seen it as a buying opportunity because of the temporary Pound weakness and they’ve snapped up over £4bn worth of commercial property in London in the last six months, so the South African investors should also be looking at it the same way and saying, “Well, look there’s nothing wrong with the UK economy, they’re just renegotiating some terms, let’s get investing now” and from the student point of view it’s quite good because with the Pound being relatively weak, it means there are more overseas students that are coming to the UK to study, so overall it ticks all the right boxes.
How can South African investors access your services, get advice from you, find out the way forward?
The good news is we do offer a personalised service and that can be accessed by looking at our website UK Property investment Projects, or we run quarterly visits to South Africa, where we do road trips through Cape Town, Johannesburg, and Durban. Our first one is this year on the 26th of January to the 5th of February, so if people can just go to our website and register their interest on certain projects that they like and once they have the cash funds ready, we can certainly have the conversation and help them take things forward. The actual website is www.onetouchinvestment.co.uk.
