Future of student hostel market in Singapore has no textbook answer

Singapore

WHEN marketing agents tout shop-houses or mixed-use buildings, a few have advertised that these private properties could convert the approved use to student hostels.

But whether that bait works is debatable. The investor demand for such student hostels in Singapore, which typically house students not yet in university, may not be as robust as that in Western markets yet.

The attraction for investing in this specific asset class is less clear as rental income from co-living spaces as well as HDB flats or condos can be relatively stronger, while current licensing rules add another deterrent.

Approvals for conversion of use are no guarantees either - a possible turn-off for investors too.

While Singapore hosted more than 68,000 foreign students - including those attending university - last year, fewer than 20 private properties are approved for use as student hostels, according to the Urban Redevelopment Authority (URA).

This is on top of purpose-built facilities on school grounds, as well as 11 state properties leased out for student hostel use by the Singapore Land Authority.

Industry observations were in line with a URA statement that "generally, there are few applications for student hostel use within private properties, and we have not observed any discernible trend in the application numbers over the past few years".

Figures from the Ministry of Education, as disclosed in a parliamentary reply in May this year, showed that the proportion of international students that enrolled in Singapore stood at less than 5 per cent in primary schools, secondary schools and junior colleges in both 2019 and 2020.

In 2019, a total of 424,402 students were enrolled in primary schools, secondary schools, junior colleges and centralised institutes, which would bring the total number of foreign students at these institutions to about 20,000. These exclude foreign students in private schools.

Lee Nai Jia, deputy director of the National University of Singapore's (NUS) Institute of Real Estate and Urban Studies, noted "lack of interest in Singapore student accommodation, compared to United Kingdom, Australia and United States markets".

He cited factors such as lower demand from domestic students, as well as a reliable public transport system that lets renters live in cheaper districts farther from campus.

Yet, recent months saw a couple of such properties advertised for sale.

Singapore Realtors Inc marketed 16 and 18, Kim Keat Road in May with "potential for co-living and student hostel usage, subject to relevant authorities' approval".

Meanwhile, PropNex dangled 449 and 451, Balestier Road in February, saying that "the upper storeys can be converted as residential co-living or student's accommodation".

Other properties touted as potential hostels include a set of shophouses in Desker Road that went on the market in January; a four-storey mixed-use building in River Valley Road last August; and a shophouse in Cavan Road in May last year.

Karamjit Singh, chief executive of Showsuite Consultancy, said city fringe areas, such as Balestier, Jalan Besar, Geylang and Aljunied, are popular with students because of their central locations and affordable prices. PropNex senior associate division director Loyalle Chin highlighted the appeal of East Coast Road shophouses.

Under URA rules, student hostels may be located in the residential part of mixed-use buildings, as well as in shophouses, subject to approval.

Such facilities house more than six unrelated full-time students, enrolled in primary or secondary schools, junior colleges or tertiary institutions.

Alan Cheong, head of research and consultancy at real estate firm Savills, told BT that there is a demand for student accommodation, but it falls through the gaps due to the planning and stamp duty regime in Singapore.

Indeed, Mr Singh acknowledged that the pool of such tradable assets and the transactions are not large. Additional Buyer's Stamp Duty liability and foreign ownership restrictions on residential properties "tend to add friction to such deals", he said.

And checks by BT showed that applications and approvals to change a building's planning use to student hostels remain rare as well.

Buyers should be aware that many of the properties recently marketed as potential student hostels had not yet actually received official permission to change their use.

The most recent planning approval for student hostel use on a private property was granted by the URA in early 2020, the agency said in response to BT queries, though a full list of addresses was not made available to the public or to the press.

"Proposals for student hostels are assessed contextually, taking into account factors such as the planning intention for the site, compatibility of the use with surrounding developments, potential impact on nearby residents, etc," the spokesperson added.

In any case, Savills' Mr Cheong said that more lucrative business models may quash interest in converting the space into student housing.

"Although there is a need for student housing, the market is not working smoothly because any private site that is available for sale has a higher use than for student accommodation... Returns are sub-optimal then."

Dr Lee from NUS added that student hostel operators also face greater competition from HDB flats and private condominiums.

"I would think their margins are comparatively lower," he said.

Indeed, a Balestier property with student housing approval was recently sold to a buyer that did not even initially intend to run a student hostel business on the site.

Property management group LHN last year paid S$18.1 million for the four-storey property at 320, Balestier Road. The second floor is licensed for student hostel use until 2023, while the third and fourth storeys are zoned for residential use.

"It is the intention of the company that these floors will be renovated into a co-living space," Singapore-listed LHN said in a bourse filing at the time. It cited how "co-living has a different revenue model" from the "traditional rental model" seen in student hostels and apartments.

Co-living spaces can be on residential premises, with a minimum three-month stay; in serviced apartments, with a minimum one-week stay; and at hotels, with no minimum stay.

To be sure, LHN is now retaining the use of the second floor for student lodging - since the URA has turned down applications to convert the space to serviced apartment use.

The second floor will house "a co-living space concept but designated for student housing", while the third and fourth floors will be "co-living spaces for all other residents", according to Kelvin Lim, executive chairman and managing director of LHN Group.

When asked, Mr Lim told BT that details will be announced closer to launch, though "rental rates will definitely be very competitive and benchmarked against market offerings".

Still, Savills' Mr Cheong stressed that, "from our sensing, the latent demand for student housing is strong".

"However, given the dearth of such properties that fall within the buyers' feasible range of pricing, hardly any such properties get transacted," he added.

The state of the market thus leaves sellers to hope that student hostel offerings may still pique the interest of individual investors "with an investment horizon beyond the Covid-19 pandemic", as NUS's Dr Lee put it - as long as their pockets are deep.