According to UNICEF India, there are more than 1.5 million schools, 8.5 million teachers, and 250 million students in India. Besides, the Indian education system has made it essential for every student to complete his/her primary education. This has increased the demand for school properties in the country. By FY25, India's education sector is expected to have a market value of US$ 225 billion, up from US$ 117 billion in FY20. With so much scope in the educational sector, educational properties like schools have gained a lot of importance.
Other than the scope the Indian education sector has, school properties in India have an array of benefits reserved for its investors. If you are someone looking to invest in school property, then you must take a look at the advantages these properties provide, prior to investing.
For a start, let’s first understand what school pre-leased properties are-
A commercial property that consists of tenants already, at the time of sale, is called pre-leased commercial property.’ Now if the commercial property consists of a school as a tenant, then it is known as a school pre-leased property.
Generally, all the pre-leased commercial properties have a set of common benefits like long-term stability, long lease tenures, higher rental income as compared to residential properties, a source of passive income, etc. But each pre-leased property has a set of unique advantages too.
We have mentioned some of the advantages that a pre-leased school property provides-
1) Stable tenants -
Schools are known for their stability, as they have a very strong student base and image in a particular area. Hence, they do not prefer transferring to other locations often. Besides its location-related stability, schools are financially stable too! With a regular and compulsory fee structure which usually upgrades to a higher amount and corresponds to the rising inflation, schools are reliable when it comes to timely rental payments.
In India, private schools charge higher fees as compared to Government Schools due to the high-class facilities that they provide, for example- air-conditioned classrooms, huge libraries, independent computer labs, etc. The best part of the school pre-leased properties is that these properties are occupied mostly by private school tenants. This is because most government schools have their own government land on which they build school properties.
Nowadays, many parents are inclined to put their kids in a private school and hence private schools become reputed tenants, with a considerable amount of inflow, giving you a good rental income. In the case of government schools, they are trustable as they have long leased tenures and are handled by government authorities, which are more dependable and trustworthy when it comes to legality. Schools also collect a positive cash flow as they have an advance fee collection system.
2) Long-term leases-
Where other pre-leased commercial properties have a lease tenure of 5 years to 15 years, school pre-leased properties are known for their longest lease tenure, which lasts up to 15-100 years! Apart from that, the lock-in period of a pre-leased school is also around 10-15 years as compared to other pre-leased properties which have a 3-5 year lock-in period.
3) High rental yields-
While commercial properties like offices, retail, warehouses, banks, etc. provide a rental yield that ranges between 5%-10%, the pre-leased schools provide a rental yield ranging from 7%-11% annually! Which is the highest amongst any residential or pre-leased property.
4) Good locations-
Generally, schools are located in good locations with transportation facilities, medical care, and retail stores, and are close to residential areas for easy commutes for students. Also, an area with a school is more valuable and is considered an investment hotspot, especially for residential property investment. This is because the areas with school properties around are safe, with lesser crime rates, and great security.
5) Expenses and interior done by the tenants-
Some reputed school tenants do the interior by themselves. Also, the maintenance and management of the entire property are done by them. This makes them hold on to the property for a longer time period, which again benefits you as an investor.
With these many benefits of investing in a school pre-leased property, the only disadvantage is that these properties are not built to suit. That means these properties can be further leased to only an educational institution and not any other tenant.
School pre-leased properties are a great asset that you can add to build your financial stability. It is a low-risk investment, especially if you invest in a property that has a reputed school tenant. Parents rarely change their child’s school mid-stream. The school system provides a predictable, long-term customer base with only one major transition between junior and senior school. As a result, a reliable revenue outlook with a single acquisition point can be provided.
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