Student Accommodations Amidst a Declining Birth Rate and Aging Population: Why Invest?
Student accommodations are gaining more and more attention in the real estate investment market. Looking at the bigger picture in Japan, the number of children being born is shrinking and the population is aging. You might think that, with a lack of students, student accommodations may be a risky asset. However, the population of students in Tokyo is the largest in the world, and the demand for student accommodations is also supported by international students.
Highly functional student accommodations running short
According to the School Basic Survey by the Ministry of Education, Culture, Sports, Science and Technology, the number of university students has increased from about 2.28 million in FY 2007 to 2.89 million in FY 2017. Japan may be suffering from a decline in the birth rate and an aging population, but this number shows that the number of students going to universities is on the rise. Tokyo, in particular, boasts the world’s largest population of students—about 1.5 million. Naturally, it attracts international students from all over the world. In comparison, London is a diverse, international city, but has only about 0.37 million students in 39 universities (as of 2016). Meanwhile, Tokyo is one of the largest host cities for international students in the world. Having said that, accommodations for those students are still running short. Here, we see the potential of student accommodations as an investment target.
Outside of Japan, high-quality student accommodations are the norm. It is said that there are over 10,000 such facilities in London. These facilities are equipped with Wi-Fi and advanced security systems, and provide great common spaces for local and international students to build communities. On the other hand, compared to London, Tokyo has no student accommodations that are truly “high in quality.” International students have few places to go. Japanese developers and investors have started to see student accommodations as an investment target in recent years, but the true pioneer of high-quality student accommodations is the U.K.-based GSA. In 2014, GSA and Star Asia, a Japanese real estate agency, founded GSA Star Asia, and they began developing and operating student residences in Japan in April the following year. This success fueled the popularity of student accommodations in Japan.
Although there are real estate agencies that are operating student accommodations in Japan, the level of service they provide is far below that of GSA. CREVIA WILL Musashi-Kosugi is a student dormitory in Musashi-Kosugi that was completed in March, 2017. It is an example of high-quality student accommodations developed by Japanese real estate agencies, which remain few in number. CREVIA WILL has a spacious community space with a cafeteria, a lounge, and a terrace, and each floor has a common area with a kitchen. It also has a multi-purpose room that is great for studying alone or in a group, and a gym equipped with exercise machines. The residence building provides opportunities to facilitate networking between international students and Japanese students who are interested in building global networks. In addition, it has a floor-by-floor security system manned 24 hours a day, an entry monitoring system, and health guidance services, as well as breakfast and dinner. There has never been such a state-of-the-art dorm that provides hospitality to this extent.
CREVIA WILL serves as accommodations for students studying at Temple University, Japan Campus, and for international students studying at Aoyama Gakuin University. From the viewpoint of development of human resources that have potential to play a role on the international stage, student accommodations where Japanese students live together with international students are a great place of education for them. Moreover, students’ parents who live in rural areas appreciate student accommodations, where they can keep their precious children safe and monitored. Students come from rural areas to Tokyo to attend university. Naturally, they live by themselves. Unmonitored by their parents, their lifestyles become irregular. In order to avoid this, parents came to demand that their children enroll in student accommodations with strict management.
Japanese business practice posing an obstacle to international students
International students have little chance of taking up residence in conventional student accommodations in Japan. Apartments near universities have served as accommodations for student, but renting an apartment in Japan comes with some unique requirements, such as a joint guarantor, a security deposit, and key money. Japanese students who have come to Tokyo from other parts of the country will not find these requirements difficult, but they pose a huge obstacle to international students. According to the Ministry of Justice's survey published in April, 2017, about 40% of foreigners who have looked for a residence in the past five years have been turned down once or more. In Japan, it is not illegal for a landlord to refuse entering into a rental agreement on the grounds of the renter’s nationality. This globally abnormal situation has also tormented international students. However, the latest student accommodations that are being developed have removed many of the obstacles often found in rental agreements.
The government getting serious about attracting international students
In 2008, the Japanese government put in place the 300,000 International Students Plan, a policy to increase the number of international students to 0.3 million by 2020. The Top Global University Project launched in 2014, and 37 universities nationwide were chosen for the projects (including type A and B). The project requires that universities offer accommodations where Japanese and international students live together. This requirement, too, is boosting the increasing need for student accommodations. The Japanese government provides an incentive to universities to maintain a certain number of international students, and encourages the development of “global-style” student accommodation. In response, the Mizuho Financial Group procured 10 billion yen in funds and expressed its intention to enter into student accommodation market. It is reported that Mizuho had invested in three projects as of the end of March 2018, and is aiming to invest in seven more projects in the next two years, including both new developments and renovations of existing facilities. Each facility will accommodate up to about 300 students, and the rent will range from 30,000 yen to 80,000 yen per month. The management of the facilities will be contracted to an external operator. After construction is complete, the fund is planning on leasing the properties to universities for about five years and listing it as a REIT in its exit strategy.
Student accommodations will earn as much as a rental apartment building in terms of real estate investment, but the risk of vacant rooms is smaller in student accommodations, as it can be expected that universities and operators of student accommodations will rent rooms in large batches, and that it will earn a stable profit, in comparison to rental apartments, with which it is not guaranteed that the rooms will be rented. Although it is an unexpected twist in times when Japan is plagued by a declining birth rate and an aging population, more and more investors may soon be gaining a taste for student accommodations, for which they can expect a steady demand.