Asian investors are at the forefront of a UK student-housing building spree

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Demand is outpacing supply in accommodating international students from Asia

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PORTSMOUTH – JULY 20: graduation ceremony at Portsmouth University on July 20, 2015 in Portsmouth, UK

Spurred by incredible demand and stable returns, Asian investors are allotting huge outlays for housing international students enrolled in UK universities.

Investors from Asia accounted for a record 21 percent of student housing transactions worldwide last year, a meteoric increase from 1 percent in 2015, Bloomberg reported, citing data from Real Capital Analytics.

Appetite for student housing deals among Asian investors acknowledges an ever-increasing mix of Asian students, led by the Chinese and Indians, in British higher education institutions. Many are getting short shrift in student beds, with the UK provision rate, defined as the number of registered students divided by the number of spaces in purpose-built student housing, standing only at 24 percent, Savills Plc data show.

Apparently, land values in Britain’s university cities are hampering new student-oriented developments, already competing with office and general residential projects.

Asian investors do not seem to mind. GIC Pte, Singapore’s sovereign wealth fund, and Mapletree Investments Pte funneled a record USD16.2 billion into student-housing acquisitions in 2016, with around USD3.3 billion struck in Q1 2017 alone, per Real Capital Analytics.

More: Why British property has such enduring appeal

In a low-yield environment, student accommodation has proven to be an anti-cyclical asset class, defiant of economic downturns, said Chua Tiow Chye, deputy group chief executive officer at Mapletree. “In the UK, US and Australia we see a trend of low supply of purpose-built student accommodation. This contributes to a growing demand for this asset class, and under-graduate enrollments in these countries are expected to continue to increase in coming years.”

Mapletree has revealed plans to explore student housing in Australia and Europe, in addition to its 14,000-bed portfolio in the UK and US. The Singapore-based investor acquired 25 properties in Britain last year in its maiden venture into student housing.

Meanwhile, GIC partnered with Dubai-based GSA to invest in student accommodation in Germany and the U.K. last year. “From a total portfolio perspective, student housing provides both defensive and diversification benefits from other traditional property sectors as it is less volatile and less dependent on the economic cycle,” Lee Kok Sun, chief investment officer of real estate at GIC, told Bloomberg.

“Finding the right product and partner to invest with has been key to our approach but also the biggest challenge.”

Read next: Why Asian investors in London should focus on older residential stock