Private Education Facilities a Rising Investment Target in Asia

Private Education Facilities a Rising Investment Target in Asia

Commercial News » Hong Kong Edition | By Michael Gerrity | November 8, 2018 8:09 AM ET

According to JLL, the private education market in Asia Pacific is a rising property investment sector, a trend driven by the region's demand for high-quality international schools focusing on English study. Asia Pacific's private education market is estimated to be worth $370 billion.

"With a burgeoning local middle class, shrinking family sizes and more double-income households, parents are now seeking first-rate academic options, taught in English to give their children a leg-up in an increasingly globalized society," says Noeleen Goh, Director of Alternatives, Capital Markets, JLL Asia Pacific.

In Hong Kong (China), the number of English-medium international schools increased from 92 in 2000 to 177 in 2017, and the number of students more than doubled during this period. In countries without adequate national English curriculum - such as mainland China, Vietnam, Thailand and Japan, English-language teaching institutions have also seen a spike in popularity among parents.

Raymond Fung, Regional Director of Capital Market, JLL Hong Kong, said, "The scarcity of suitable sites, combined with increasing demand for international school places from local wealthy families, means that most schools in Hong Kong are operating at, or close to, full capacity, and there are long waiting lists at virtually all of the leading schools. The major challenge of investing the city's education sector is lack of suitable sites for development."

Rising Investor Interest

Investment is on the rise among companies that build and run international schools, which have backing from institutional investors, private equity firms and pension funds.

In the private education sector, it's common for operators to separate the real estate from the operating company - this gives investors the option to sink their capital into either the education operations or the real estate assets. The former can channel their funds to invest in the core business of educational services. Real estate investors, on the other hand, can maximize the asset value by either leasing the school facility back to an established long-term education operator or building a bespoke campus with rents to hedge against inflation.

"With yields set to be at a premium above traditional asset class, many are keen to delve into this sector as it offers high-growth and is fairly recession-resistant due to its long-dated leases, making it less prone to market volatility compared to the more traditional property assets," explains Goh.

International Education Enjoys Bright Prospects in China

In mainland China, the number of wealthy local parents willing to spend a significant portion of the household income on high-quality education has increased.

"At the macroeconomic level, China is far ahead of other nations in terms of both GDP and the per-capita disposable income growth, and the nation's economy is developing rapidly to support the market space for international education for a long time to come. At the same time, the acceleration of urbanization and the transformation of the main market consumers will undoubtedly continue to boost the robust demand for international education," says Steven Xing, Head of Alternative Investment, JLL Greater China.

However, international schools are also facing challenges when entering the mainland China market because of restrictions on nine-year compulsory education and foreign-fund ownership. "Typically, foreign investors enter the market by forming joint ventures or partnerships with local players, as they (sic) offer a good understanding of the local competitive and regulatory landscape," says Xing.

The report also notes that international education will show several noticeable trends in the Chinese market. First, with the rise of education technology, the online teaching platform and the new technology model will become more and more popular. Second, private education investment shows a high growth trend. Third, the market will be more segmented than ever before as investment in education increases.

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