Student Accommodation in London - Don't Get Ripped Off!

According to this Sunday Times article, Singaporean investors are going for student units in Britain.  The entry price is low and the 'guaranteed' returns seem high.  More international students are going to Britain, so it all looks rosy.  Really?

Don't Get Suckered By Student Accommodation
This article by Merryn Somerset Webb of the Financial Times says it all.  A graduate of Cambridge, Ms Webb is the editor in chief of Moneyweek, a weekly UK investment magazine. Ms Webb also writes extensively for the Financial Times, see here for the articles she has written.

Let me lay out the reasons why Ms Webb argued against investing in Student Accommodation, which we fully agree with, that is why you will see that we have never bought into student accommodation.

Locked into a Contract - Fractional Ownership
What exactly are you buying?  I am not sure.  When you buy a property, you get a title deed lodged into the Land Registry and the property is yours for the period of the lease.  What do you get for a student accommodation purchase?  Do you get a title to the room?  Of course not.

Instead, you are probably locked into some contract with the main owner of the company.  This is called fractional ownership.  What are your rights as a fractional owner?

No Control Over Fees 
What control do you have over the management fees?  The short answer is none.  You would be at the mercy of the company.  Let's say the management fees are increased beyond all reasonableness and you refuse to pay them.  What recourse do you have?  I am afraid they will just withhold your rental payments and/or even take the unit back from you.  (It boils back to the first point - what rights do you have as a fractional owner?)

What is your Exit Strategy
Is there a secondary market for these units?  Even if somebody is willing to buy it from you, what is the process and what fees are there?  You need to be very clear about all this.  The reality is there is likely to be no secondary market.  I read that some of these companies are smart - they offer a 'buy-back guarantee' for units at 25% of original purchase price after 8 years.  Well, again the second point applies.  They could buy back from you, after deducing all types of fees, which you have no control of.

Conclusion
The bottom line is this - you may get ripped of.  These companies are all out to make money.  In a situation where they know you, as a small retail investor, have no bargaining power once you pay them the money, what's stopping them to rip you off?

Update:
Read my next blog post on the Opal Group which nicely demonstrates the perils of these investment products.

Have you invested in such instruments?  Do share your experiences with us on the community forum.

Beware!