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Student hostels the new frontier for foreign investors

Thursday June 7 2018

A private students' hostel in Nairobi. PHOTO | FILE | NATION MEDIA GROUP

A private students' hostel in Nairobi. PHOTO | FILE | NATION MEDIA GROUP 


Of the 49 public and private chartered universities currently registered under the Ministry of Education, about half are located in the country’s capital, Nairobi, with the rest scattered in  major cities and towns across the country.

This situation presents a unique rural-urban migration, precipitated by the search for higher education. It compounds the housing problem that continues to bedevil this country, and will continue to do so in the foreseeable future.

For starters, the country is facing a housing deficit of at least 150,000 house units annually since, in a bid to meet demand, local developers are able to put  up only slightly more than 35,000 house units every year, which is seen as a drop in the ocean against the annual demand of 200,000 units.


This means that the country’s long-standing backlog of more than 2 million units continues to grow by more than 150,000 every year. At the heart of this problem, real estate insiders argue, is a growing rural-urban migration that stands at 4 per cent per annum.

“It is estimated that by 2050, half of Kenya’s population will be living in urban centres,” Mr Francis Kamande, National Housing Co-operative Union (Nachu) national chairman told DN2 in an earlier interview.


With the increasing housing deficit, unmet annual demand, the high rate of rural-urban migration by young people, therefore, the country’s housing woes, it appears, are here to stay.

But some multinational companies have seen this gap and are keen to capitalise on the opportunity.

For instance, according to media reports earlier this year, Consonance Kuramo Special Opportunities Fund I, a subsidiary of New York-based Kuramo Capital, bought an undisclosed equity stake in Century Developments Ltd, a Nairobi-based Pan-African real estate development and investment company that focuses on building affordable housing around Africa.

This deal will see Consonance Kuramo Special Opportunities Fund I invest Sh20 billion over the next five years in the development of 10,000 purpose-built student housing units, and 7,500 affordable houses targeting young people and middle-income families in major towns and cities, and along the growth corridors in East Africa.

Orange County Student Hostel in Athi River.
Orange County Student Hostel in Athi River. Private hostels are offering facilities such as swimming pools. PHOTO | COURTESY


According to Ms Patricia Wachira, a senior researcher at Cytonn Investment Ltd, this is a step in the right direction towards addressing the high demand for accommodation across Kenyan institutions of higher learning, as well as addressing the housing deficit in the country by building affordable housing.

According to a Jumia research released in 2016, there are approximately 280,000 bed spaces in institutions of higher learning, against a student population of 769,000 in the country.

“The gap is in both private and public universities. You will find that in public institutions, only those who manage to book early get accommodated within the university while the others have to look for accommodation outside the campus. Similarly, most upcoming private universities are just putting up lecture halls and administration blocks but they are not providing accommodation. So developers are taking advantage of that to provide housing,” says Ms Wachira.

It is not clear why most well-established and institutionalised local developers have not paid much attention to this market segment. Ms Wachira says this is a sector serviced largely by individual developers, yet it has the potential to rake in handsome returns.

Ms Wachira says: “With student housing, the room-sharing aspect makes the venture more profitable. For instance, four students might share one room, with each one of them is paying, say Sh10,000, bringing in a total of Sh40,000 a month. Not forgetting that most amenities in that room are shared, at the end of the day the yields are basically higher because that Sh40,000 is what you would charge for a two-bedroom house in a place like Ruaka. So there is that attractiveness based on yields.  But it also depends on how well the developer plans the project.”

She adds that this is a sustainable market, especially in the short-and mid-terms, but for it to prove a worthwhile investment in the long run, the management aspect is key.

Some of the challenges developers eyeing this market should brace themselves for are student indiscipline, defaulting on payment and reliability of income, especially when students break for a long holiday.

But to navigate these challenges, Ms Wachira advises developers to, among other things, adopt strict management policies so as to keep the facilities in good condition, adopt a system where students pay for accommodation and other services at the beginning of the semester, as well as look for boot camps and conferences to keep their facilities occupied during the long holidays.

Yet another firm that has shown interest in the sector is Helios Investment Partners, a UK-based private equity firm, which signed a memorandum with Kenyan-based property development firm, Acorn Group,  to build 3,800 student housing units across Nairobi at an estimated cost of Sh7.4 billion.


According to a Cytonn Research in 2017, several private hostels have come up in areas neighbouring universities due to the shortage of accommodation for the growing student population.

For example, in areas such as Juja, where Jomo Kenyatta University of Agriculture and Technology (JKUAT) is located, and Rongai, which is close to the Catholic University of East Africa, JKUAT Karen, Multimedia University, and Nazarene University, private investors have developed hostels where students pay rents ranging between Sh4,000 and Sh8,000 per month for a bedsitter measuring about 20-30 square metres.

These are some of the most promising locations for such a venture.

However, Ms Wachira notes that they have seen modern hostel facilities coming up along Lang’ata Road, Jogoo Road and Thika Road, which charge higher rents of between Sh15,000 and  20,000 per student, mainly due to the added facilities such as elevators, CCTV cameras, generators, gyms and services such as 24-hr security, transport to and from college, garbage collection and entertainment.

Like any other market, she says, this one is also segmented, based on students’ ability and it is upon the developer to determine the target population.

“With rents ranging from Sh750 to Sh1,000 per square metre, coupled with an occupancy level estimated to be above 80 per cent and an estimated development cost of Sh100,000 per square metre, modern student hostels have potentially high yields compared with conventional real estate sectors such as commercial, office, industrial and residential.

Modern student hostels yield between 7.2 per cent and 9.6 per cent while the average yield for conventional real estate sectors was 7.4 per cent as at 2017. In our view, this is a viable investment for both Consonance Kuramo and Century Developments,” says Ms Wachira.