South Africa’s hidden property goldmine

South Africa’s severe shortage of student accommodation presents a lucrative opportunity for property investors, but success depends on offering quality, compliant housing and managing the high costs and risks that come with the sector.

Student housing shortages have been making headlines for years. Private Student Housing Association CEO Kagisho Mamabolo has estimated that the country needs 500,000 beds to address this shortage.

The student housing crisis has resulted in numerous student protests at South African universities, including the University of the Witwatersrand, the University of Cape Town, and the University of Pretoria.

There is a clear need for decent, affordable accommodation near South Africa’s Higher Education Institutions, from Universities to TVET Colleges.

However, TUHF portfolio manager Siya Jele explained that a property entrepreneurs need to strike a careful balance when entering the market.

“The financial considerations for a student accommodation project are very similar to those of any other affordable housing development,” Jele said.

“However, understanding all the ancillary costs involved in providing housing for students that meets all the criteria outlined by universities and preferred by students is crucial, as these can be quite different.”

Utilities and Wi-Fi, for example, must be built into the rate per bed. Landlords can’t recover these costs from students individually, as they usually would with typical tenants.

Depending on the distance from the facility to campus, landlords may also be required to provide transport services to and from campus.

“You can’t just charge a bus fare. The cost of the shuttle and running the service must be included in your rate per bed,” he said.

Jele said students are fickle and have high expectations. They prefer not to share facilities like bathrooms or kitchens en masse, which means the old dormitory-style approach doesn’t work in this space anymore.

“Properties must be designed with private bathrooms and kitchenettes included in each unit. These units can be shared by a limited number of students,” he explained.

“Wi-Fi, too, is a deal-breaker for students – if it’s unreliable or slow, they will move, the word will spread, and you’ll find it difficult to fill your units next year.”

Opportunities and challenges

Jele said a multi-residential block of flats, for example, can command a cost-to-income ratio of around 30% to 35%. For student accommodation, running a decent facility is closer to 50%.

“So, being mindful of these unique costs is very important for a successful business in student housing,” he said. Student Housing provision is actually closer to Hospitality than normal residential accommodation.

Even so, the profit margins on student accommodation are good, as long as entrepreneurs provide the right product that meets the demands of students and universities.

“It’s just a matter of balancing the increase you’re getting in terms of rental income against the commensurate increase in your operating costs. You have to put a lot more in to get a lot more out,” he said.

Fortunately, Jele explained that there are ways that property owners can manage their operating costs effectively.

“We’ve seen clients achieve good results by implementing Building Management Technology geared towards sustainable energy and water use to minimise utility costs,” he said.

“Placing motion-sensing light fittings in common areas to turn lights on and off, depending on whether students are using the space or not, can significantly decrease energy costs.”

Landlords can even link the lights and plugs in each unit to students’ building access cards, so they work much like hotel key cards.

“When students enter their rooms, they slot their card into a slot on the wall that activates the lights and plugs. When they leave, they take the card with them, turning everything off except the fridge,” he said.

Other cost management examples include using heat pumps instead of traditional geysers and low-flow water fittings.

The risks

While well-managed, well-appointed student accommodation facilities can give a higher return than standard affordable rental housing businesses, Jele warned that the risks are also higher.

One such risk lies in cash flow management, as student accommodation providers can only expect rent payments for 10 months of the year and are often heavily dependent on the National Student Financial Aid Scheme (NSFAS) for payment.

NSFAS’s poor handling of private student accommodation payments has also been making headlines for many years.

Late payments from NSFAS, directly or from universities that channel NSFAS payments to accommodation providers, can put property entrepreneurs in a very challenging position in terms of meeting their loan obligations.

At the beginning of 2025, Mamabolo said that NSFAS owed Private Student Housing Association members R44 million for student accommodation.

Delays continued during the year, with NSFAS pushing the deadline for accommodation payments back multiple times.

“NSFAS is such a massive lever,” Jele said. “It poses the biggest risk to successful student accommodation projects at the moment.”

“People can go for months without receiving payment, all the while having to maintain the standard of facilities they provide, with the result that a disproportionate volume of TUHF’s impaired loans are for student accommodation projects.”

This makes it increasingly difficult for responsible lenders to loan money to new entrants due to the associated payment risk.

That said, Jele explained that NSFAS could also drive student accommodation opportunities. Investors have focused on developing student accommodation facilities close to traditional universities.

“But eventually, this market will become saturated. At the same time, there is very little focus on providing decent accommodation for students at TVET colleges. These institutions face the same dire shortages,” he said.

“If NSFAS resolved its funding mechanism challenges and drove funding towards supporting students in vocational training as well, there is huge potential in this largely untapped market.”