Japan’s Student Housing Demand Gains Traction
Low default risk and rising enrolment by women and international students have led to increasing developers’ interest in student housing.
The number of international students in Japan has more than doubled between 2009 and 2018 to approximately 300,000, the Nikkei Real Estate Market Report said in its September 2019 Issue 122.
Separately, the percentage of women enrolling in universities exceeded 50% for the first time last year.
Numerous developers have entered the market in recent years in part due to the “ease of making revenue, the report said, citing an analysis by TMAX Valuation.
Move-ins and move-outs occur during enrollment and graduation, enabling smoother operations, according to TMAX. Rents are paid mainly by parents, resulting in scare payment defaults. While landlords can’t expect significant rent increases year-on-year, the rental return is stable, said TMAX.
Based on the study, managing student apartments under a master lease agreement yields an operating revenue of 50% to 60% for the operator. The standard monthly rent of dormitories near Tokyo is around 100,000 yen (US$920), and the cost will rise a further 20,000 yen (US$180) including meals.
Recent REIT acquisition deals for students housing have shown that the capitalisation rate, or rate of return, of such investments was slightly higher than that of general apartments.
TMAX pointed out that this premium could be due to the lower risk of universities relocating, cancelling of master lease agreements or being converted for other usages.
According to Nikkei Real Estate Report, a key consideration when choosing the location of student residences is their proximity to the university. An attraction for developers is the fact that these locations are not necessarily near a train station, where land space may be more expensive. Unlike for-sale condominiums, demand can be expected even if they are not located near stations, the report said.