Stay away from student pods, warns developer

AFS Team·29 May 2013·3 min read
Stay away from student pods, warns developer
Student investors are paying over the odds for pod investments – with prices per square foot sometimes double that of a similar property in the neighbourhood.

Student pods are single self-contained rooms in developments, and follow the model of buying a hotel room in a resort.

However, both come with a hidden kicker in the price tag, according to student rental experts.

Developers sell the pods on yields not price – and investors can get carried away with interpreting the return on investment.

A pod in a leading university city costs from £30,000 and the sellers promise 10% plus returns – with the price around a third of the cost of a cheap buy to let home, while the return on investment is around double.

But the average pod is tiny even compared with the average 500 square foot floor print of a new home.

Investors are discovering that when buying incentives like rent guarantees expire, yields plunge and no one wants to buy a student pod.

Developer FreshStart Living, has ceased selling pods to individual investors after agreeing to hand over thousands of pounds compensation.

“The guarantees are rarely sustainable,” Charlie Cunningham, the firm’s chief executive, told the Financial Times.

“Investors are often left with a useless property from which they will not only struggle to generate a reasonable income but they will also struggle to resell.”

Mr Cunningham called for tighter regulation of the market, noting “people investing in property are not that sophisticated”.

Some developers are accused of playing on less than financially savvy investors who see pound signs without assessing the risks.

Buying a pod means relying on the marketing, customer service and business acumen of a third party – the investor has little or no control of the pod and cannot even choose the colour of the walls or carpet.

Developers play on the yields and projections issued by property consultants like Knight Frank, CBRE and Jones LaSalle who appraise the corporate and institutional student residential market.