Are students and their parents or sponsors obliged to pay rent for campus housing they aren’t occupying? Or should they be entitled to a rebate? And, if so, how will revenue losses and rising rental arrears affect student housing operators?
These are just some of the questions the property sector is grappling with as universities adopt a phased-in return of students while SA’s Covid-19 infection rate continues to spike.
Students, like any other residential tenants, are legally bound to pay rent in accordance with the terms of the lease agreement signed with their university or landlord. However, most tertiary campuses have been shut since early March, when students went home for the Easter recess. Anecdotal evidence suggests that less than 10% of SA’s student body has since returned, which has resulted in a growing call among students for a "no stay, no pay" policy.
Though a number of student housing providers have come to the party by offering pro rata rental discounts of 30%-50%, the FM believes some are giving tenants zero relief.
That has prompted the Private Student Housing Association (PSHA), a body that represents major providers of student accommodation across SA, to step in and come up with payment relief guidelines to help the industry ride out pandemic-induced campus closures.
The PSHA, which has been in close consultation with universities, student bodies and the department of higher education & training, is expected to finalise its recommendations within the next few weeks.
Craig McMurray, PSHA co-founder and CEO of student housing operator Respublica, says there isn’t a one-size-fits-all solution — particularly as no-one knows when on-campus classes will properly resume in full, or for how long the current academic year may be extended.
"These big unknowns are having a huge negative impact on the sector. So it’s critical that the industry comes up with an equitable proposal that will balance the needs of all stakeholders," he says.
One option under discussion is for housing operators to extend their lease contracts from the usual 10 months to 12. McMurray believes this will help stem revenue losses for operators while assisting students who have to extend their academic year by providing two months rent-free. "That effectively equates to an annual rent saving of 25%-30%," he says.
The key challenge for accommodation providers is that they’re still incurring 85%-90% of their normal monthly operating costs — irrespective of whether rooms are empty or not. As McMurray points out: "We still have to pay staff, other service providers and mortgage interest payments. Utilities, such as water and lights bills, are the only variable costs that have dropped."
Rising rental shortfalls are creating cash flow constraints for many operators, which McMurray warns may force some to shut their doors — a situation that SA can ill afford, given its historic shortfall of student accommodation.
"The biggest threat the industry faces is that there won’t be enough beds left when universities eventually resume contact classes, which will ultimately be to the detriment of students," he says.
John Schooling, director of student housing developer Stag African, voices a similar concern. He reckons year-to-date rental collection rates for student housing providers across the board are sitting at about 50%. The sector faces huge revenue losses if collection rates don’t improve for the remainder of 2020, he says.
In fact, several companies are already closing shop and selling their stock, which Schooling believes will worsen the existing student housing shortfall, estimated at about 300,000 beds.
"The implication, says Schooling, "is that the student housing sector will be forced to re-innovate and come up with more affordable ways to accommodate the country’s student population."
SA’s student housing sector is not the only one battling to find solutions after being left in limbo by Covid.
Times Higher Education (THE), the company behind one of the world’s best-known university rankings, reports that a recent survey by the UK’s National Union of Students found that about one-third of students believe the forced decampment back to their family homes should entitle them to an early release from rental agreements. However, less than a tenth have been given the opportunity to do so. Some housing operators are even using debt collectors to pursue students who have withheld rents due to campus closures.
THE says the varied responses from UK accommodation providers — including universities, private landlords and developers of purpose-built student accommodation — have highlighted the fragmented nature of the UK’s student housing sector, a colossal industry that generates about £2.5bn a year in rentals.
UK housing providers may face an even bigger cash crunch than their SA counterparts if demand from international students dries up — at least until a Covid-19 vaccine is found. According to THE, a recent study suggests there will be a 47% drop in international student enrolments at UK universities when the new academic year starts in September.
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