This article first appeared in City & Country, The Edge Malaysia Weekly on October 14, 2024 - October 20, 2024

The Australian government intends to cap the number of international students entering the country at 270,000 by 2025 as part of its migration crackdown initiative, according to reports.

Education minister Jason Clare announced that the yet-to-be legislated National Planning Level (NPL) will cap international students heading to universities in Australia at 145,000, for those heading to the skills training sector the cap is 95,000 and the remaining 30,000 to other education categories.

Will this announcement have a negative impact on property investment, particularly those that target university students? Property experts say it is highly unlikely.

JLL Malaysia international residential lead Chong Shu Ling opines that the restrictions announced will not have a material impact on the student accommodation sector given the severe lack of supply. “There are currently only about 147,000 student accommodation beds nationally and only 2.9% of the existing purpose-built student accommodation (PBSA) supply is currently under construction. The restrictions will impact the sector significantly less than previously expected.”

Knight Frank Property Hub executive director Adrian Yeoh says there might be an impact in the short term but things will settle overtime. “In the immediate future, the cap may reduce the demand for new student accommodation developments, particularly in cities like Sydney, Melbourne and Brisbane, where international students predominantly reside. This could temporarily stabilise rental prices in these areas, as demand may not outpace supply as rapidly as before. As the cap takes effect for the medium term, existing student accommodations may see higher occupancy rates due to limited new developments. However, the market may experience slower growth in rental yields compared to previous years.

“Over the long term, if the cap remains or is further adjusted, the investment in purpose-built student accommodation (PBSA) may become less attractive, potentially leading to a shift in focus towards other types of residential developments or different regions outside the major student hubs,” says Yeoh.

On the ground in Australia, Brand C – The Property Community director Brandon Chuah puts the situation in perspective.

“Firstly, it is important to remember that these changes to legislation are only proposals at this stage and have to be approved by the Parliament of Australia before they come into effect. As history has shown, there are no guarantees that this will occur without some changes being made.

“Secondly, the proposed cap is to limit the number of new international students to 270,000 in the 2025 calendar year. So this will not impact those students who are already enrolled in Australia.

“Furthermore, the cap is aimed specifically at the higher education and vocational education sectors, so it will not have any impact on those students coming to Australia to undertake their secondary education.

“The changes will also not impact students undertaking higher degrees by research, those undertaking standalone English courses, or government-sponsored students, for example,” he adds.

Chong says JLL’s clients are unperturbed by the news. “Most Malaysian investors have no major concerns. Most clients who have already invested in Australia have had positive letting experiences due to the lack of new build supply, whereas clients who are interested in Australia typically have a compelling reason to invest in Australia, such as migration or children’s education.”

Knight Frank’s clients are making alternative plans, says Yeoh. “Many clients who have heard about the cap are concerned about the potential reduction in rental income from properties near universities. There is also apprehension regarding the long-term viability of their investment in student accommodations. Clients are particularly worried about whether demand will still support high occupancy rates and whether their properties will continue to appreciate.

“In response to these concerns, some clients are considering shifting their focus or diversifying their investments to include properties that not only target students but also appeal to working professionals. This strategy would help cover a broader tenant market, potentially reducing reliance on student demand alone and enhancing the overall stability of rental income.”

To Chuah, having a realistic outlook will help prevent any knee-jerk reactions. “Now, to put the cap of 270,000 in perspective, the data from the government indicates that this number is around 50,000 lower than the number of tertiary students who enrolled in Australia for the first time last year.

“However, this number reflects an increased enrolment following the impact of the pandemic. In fact, the 270,000 cap is within a few thousands of the number of new international enrolments that were recorded in the pre-pandemic years. So in reality, it’s not an excessively big change at all.”

He further elaborates that there are two key factors why the Australian government is planning on capping student enrolment.

“Firstly, there is a genuine issue in Australia at the moment when it comes to housing affordability and availability, both for those wanting to purchase and those wanting to rent. So the government is clearly wanting to be ‘seen to be doing something’ about the issue. Capping the intake of international students is a relatively easy fix.

“Secondly, this step is also being regarded as an attempt to limit the number of international arrivals who have in recent years claimed to be students, utilising some ‘courses’ that are simply a cover for dodgy employment agencies, and thereby gaining access to work in Australia,” he adds.

So what should investors do if they already have investment property or are considering buying investment property in Australia?

Says Chong, “The restrictions are only in place for 2025 (so far) and investors shouldn’t be alarmed by the announcement, especially given there is limited impact on the higher education/university sector. Another thing to consider is that a proportion of PBSA is taken up by domestic students, often overlooked, albeit not to the same extent as international students.

“Vacancy is extremely tight in the PBSA sector and the general residential market across Australia, so as long as this holds true and the supply pipeline is very low, the sector will have a strong investment proposition.”

Yeoh says investors in PBSA need to keep a few things in mind. “For existing property owners, if you already own an investment property in student accommodation, it is advisable to monitor occupancy rates closely and consider diversifying your rental offerings to appeal to a broader market, including local students or young professionals. Ensuring your property is competitively priced and well-maintained will be crucial in retaining tenants.

“For potential investors, if you are considering investing in student accommodation or other investment properties in Australia, it might be prudent to explore regions or property types less dependent on international student demand. Additionally, focusing on properties with broader market appeal, such as those near key infrastructure projects or in growth corridors, could provide more stability.”

Chuah offers a pragmatic view. “What should you be doing to address these prospective changes if, in fact, they do become a reality? Putting it simply, not much!

“If you have a student in the family who genuinely wants to study in Australia, I can’t see the introduction of a cap making much of a difference. As I said earlier, it is just a return to the numbers we saw prior to the arrival of Covid-19, rather than treating the post-pandemic rush as normal.

“If you have an investment property in Australia, rest assured the demand from renters is still exceeding the supply of available rental properties, and there are no signs that this will change in the foreseeable future. So relax.”

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