New blocks for the kids

As demand rockets for university digs, parents can help their offspring - and earn a tidy profit, too

Students are paying more than ever for digs. On average, student rents have risen by more than 10 per cent over the last three years - which is an opportunity for parents to help their kids out and make a solid investment at the same time.

Buying a flat or house near the offspring's college can enable them to live cheaply or even free, depending on how generous the parents are, and filling the rest of the place with fellow seekers after knowledge will pay the mortgage. And when your own children have graduated, the investment should begin to earn a better return than many prestigious buy-to-let units which may bring in huge rents but cost a fortune to buy and run.

Demand for student accommodation is set to rocket as universities expand under pressure to meet the government's aim to put half of all school leavers through higher education by 2010. Already, there are 1.3 million students at more than 80 universities.

Richard Donnell, research director of Savills, has found a serious shortage of student digs. "Our research shows that just 25 per cent of potential accommodation needs are met. Universities' resources are unable to fill the gap which leaves opportunities for the private sector," he says.

Developers have started to build new halls of residence in collaboration with universities, but not enough, Donnell says. "If all those developments were to be completed, then existing student accommodation would increase by just over 6 per cent," he says.

According to property investment advisors Assetz, the average rent for students now tops £60 a week, a major contributor to the £17,561 debt the average graduate will have amassed in 2006.

Stuart Law, managing director of Assetz says: "University towns have enjoyed big rent increases over the past five years, and this growth rate looks set to continue. What's more, students now expect to pay rent for a full year, despite the fact that the academic year is only about nine months long, and we are definitely seeing evidence of better property being treated with more care."

Choosing the right property for students is much more difficult than it used to be, however. Just buying a dump and covering the cracks with woodchip is no longer acceptable.

The property has to be close to the college and the town's shops and night life. To attract decent rents, every bedroom should have its own ensuite shower room with loo, but vast living rooms are not essential.

"Students are becoming more demanding these days, with broadband access generally being viewed as essential," Law says.

Over the last couple of years, developers have begun to build buy-to-let halls of residence in collaboration with universities. The new halls contain a wide variety of units, from studio flats to large apartments with shared kitchen/diners and living rooms and between four and eight bedrooms.

Lettings are arranged by the management company in cooperation with the university accommodation office, but investors who are also parents can nominate their children as tenants.

Law is currently selling units in a new student hall of residence at Victoria Park, Manchester. Most are already let for the upcoming academic year, but are on the market to investors. Five bedroom units, all with ensuites and broadband, are selling at around £250,000.

Rents average £49 a week in Manchester, which works out at a gross yield of 7 per cent before service charges of 15 per cent, Law says.

The investment could not only help children through university, it could help the parents in their retirement, Law says: "After the pension rules change on A-day in April next year, they will also be able to transfer the property into their pension and collect the rental earnings tax free."

They do need to move fast. "Parents are being squeezed out of the purchase by hard-nosed investors taking most of the units," Law says.

In Lincoln, one of the first private halls of residence, The Junxion, has now almost sold out at prices ranging from £160,000 to £275,000, according to Simon Scott of Savills.

"The development has been very popular, with half the students staying for their second year," Scott says.

The second phase, The Pavillions, is now nearing completion. It will contain both studios designed for mature students and couples, and cluster flats for sharers.

Scott is also selling digs at The Warehouse in Preston, a complex of 47 assorted cluster flats as studios. The block has a communal area featuring a 42in plasma telly for those essential footie matches, an internet cafe and laundry.