Research suggests that an increase in student numbers is creating opportunities for developers and investors to build and invest in student accommodation in Australia.

Figures released by the Australian Bureau of Statistics in November last year estimate that more than 3 million people aged 15 to 64 were enrolled in formal study. Of these numbers, 1.2 million people were aged 15 to 19 and 741,100 were aged 20 to 24.

Similarly, the Times Higher Education World University Rankings reported that there were nearly 650,000 international students in Australia, a 12 per cent increase on the previous year. Much of this growth could be attributed to increased enrolment of Chinese students, who now account for 27 per cent of the Australian higher education market.

Student numbers in Australia look likely to increase in 2017, as the International Education Association of Australia predicts we’ll see a further influx of international students following the election of Donald Trump in the United States of America and the impact of the United Kingdom’s Brexit from the European Union. Data from a JLL Student Accommodation Market Review also sees global growth of international students increasing from around 4.5 million currently to between 7 million and 8 million by 2025.

As student numbers increase across Australia, particularly in the capital cities, demand for suitable housing grows. This has resulted in a number of global property developers investing in student accommodation. Savills research indicates that more than $2 billion of capital has been earmarked for development projects in student accommodation since the beginning of 2015.

The Savills Student Accommodation Report 2016 notes that a number of universities have been active or have commenced on-campus projects including the University of Western Sydney, Queensland University of Technology, Australian National University, the University of South Australia, Curtin University and the University of Melbourne, to name just some. Strong growth in private sector proposed developments was also indicated in the report.

For those thinking of investing in student rental accommodation, there are two choices available: investing in purpose built student accommodation apartment blocks and investing in properties located in nearby university precincts which are often rented on a room-by-room basis.

Choosing to invest in either of these options provides owners with a number of added benefits, including above average rental yields, improved tenant demand and even a reduction in the chances of rental arrears, as many students’ accommodation is subsided by their parents who often choose to pay ahead in advance.

Another advantage of owning and renting out student accommodation is the depreciation deductions the owner is eligible to claim. Owners of any income producing property are entitled to claim depreciation for the wear and tear which occurs to a building’s structure and fixed items as well any of the removable plant and equipment items contained. Student accommodation is often furnished and therefore has more plant and equipment eligible to be depreciated. As a result, this can mean higher depreciation deductions for their owners.

Below is an example of the depreciation deductions investors could claim for two types of student rental properties.

The first scenario is for a one-bedroom student apartment block constructed in 2006. This property was purchased for $360,000 and is located in Carlton, Victoria near the University of Melbourne. The owner of this property receives a rental income of $550 per week or $28,600 per year.

The second example is a 30-year-old fully furnished house located in North Lambton near the University of Newcastle. The seven bedrooms are rented as share accommodation for $155 each per week for a total rental income of $56,420 per year.

Property investors are encouraged to contact a specialist quantity surveyor who can provide a comprehensive tax depreciation schedule outlining the deductions they can claim from student accommodation.

Before making a purchase, it is also recommended to speak with a financial advisor and an accountant. You should also consider some of the potential cons of renting student accommodation, such as frequent turnover of tenants, vacancies throughout student holidays and potentially an increase in maintenance and repair costs due to increased wear and tear or damage.

Student accommodation can be a very lucrative investment with the right advice, so it’s important to do your research and to discuss your strategy with the help of the relevant experts.