Many of us dream of sending our children to study in the best schools and universities around the world, but financially it can seem far out of reach.
In this article I explain a tried and tested way to use property to fund your children’s (or grandchildren’s) university education overseas.
How much does it cost to study abroad?
We’ve crunched the numbers and here is what you can expect to pay as an international student studying in either the UK or Australia (the most popular destinations for Malaysian students).
University expenses for Australia and the UK:
[Assumed exchange rate of RM1 to A$0.32 or £0.18 – this will of course vary]
Monash University (Australian top-10 university)
Tuition fees: A$40,000 per year (RM124,000)
Living expenses: A$20,000 per year (RM62,000)
Total for 3 years: A$180,000 (RM558,000)
University of Manchester (UK top-10 university)
Tuition fees: £22,000 per year (RM121,000)
Living expenses: £10,000 per year (RM55,000)
Total for 3 years: £96,000 (RM528,000)
University College London (UK top-10 university)
Tuition fees: £22,000 per year (RM121,000)
Living expenses: £15,000 per year (RM82,500)
Total for 3 years: £111,000 (RM610,500)
The main cost will be the tuition fees for each year of study, we assume a three year course and these also vary depending on whether the course requires laboratory work or other specialist facilities. Secondly we look at living costs which include accomodation (rent), insurance, groceries, some socialising, and transportation.
The findings are eye-watering. A top education from Australia’s universities will set you back over RM550,000, and in the UK a good university outside of London comes in at around RM525,000, and for living expenses and tuition inside the capital you can expect to pay over RM610,000!
This bill would require parents to put aside around RM800 per week for each child from their fifth birthday. That’s on top of existing expenses for food, medical bills, nappies, sterilisers, car seats…! That is hard for one child, and can seem almost impossible If more children come later.
So how can property help?
So here is our solution. Our principle is to invest in well-chosen brick-and-mortar assets to build a pot of money sufficient to cover all tuition fees and living expenses for an education overseas in five years.
In short you should invest what you can as early as you can, and preferably in the currency of the tuition fees you will eventually pay.
This is how it works.
- Secure capital; growing in value.
- Stable currency; holding it’s value.
- Rental income; multiplying your investment.
1. Secure Capital; growing in value.
The worst possible outcome for any investment is that it depreciates over the long term, making any short-term gains along the way worthless. Property in established markets consistently outperforms alternative investments over a ten year period, making it a rock-solid foundation for your financial goals. This includes your children’s education.
We advise to focus on major global property markets such as the UK and Australia – in particular major cities like London and Melbourne. These markets enjoy demand from international buyers which reduces the risk of economic shocks. Secondary markets such as Manchester in the UK, or Brisbane in Australia are also very strong options as they have their own major and diverse economies, also with substantial input from international investors.
So let’s first look at capital growth. Unit prices in Clayton, Melbourne (for Monash University) increased 36% between 2012 and 2017 to A$570,000; in Manchester (home to 4 universities, including University of Manchester ranked 8th best university in the UK) unit prices increased 38% to £177,000; and units in Stratford, London (commute-distance to London universities, and relatively affordable for the UK capital) enjoyed increases of 57% to an average of £411,000.
For comparison a fixed deposit in Malaysia earned an average of 3% each year for the past five years, giving an overall return of 16% since 2012. That’s below half the returns from property. Give property is a low-risk asset over the medium to long term, these returns are extremely motivating.
2. Stable currency; holding its value.
So, why not stick to Malaysia? That’s a good question, especially if you are an experienced investor in the Malaysian property market.
Fundamentally, if your investment goal is to finance an education overseas then your gains could be easily eaten up by the weak and uncertain performance of the Ringgit over the next 5-10 years. We are not in the foreign exchange business, but we do know that the only way to avoid the negative effect of currency fluctuations is to invest in the currency in which you will spend the money eventually.
If we again consider past performance of the GBP, AUD and MYR we see that AUD strengthened 5% against the MYR over the five years to 2017, and GBP strengthened 13%. When we account for these currency fluctuations and convert back to Ringgit the returns are multiplied further. The overall return in Ringgit terms would have been 43% from Clayton property, 56% from Manchester, and 77% from London.
3. Rental income; multiplying your investment.
One of the most obvious benefits of investing in property over other assets is the rental income the property will be earning while you own it. This is a huge multiplier effect on your investment.
Returns will vary depending on the property, but the markets we operate in tend to have very high occupancy rates of over 95% – that means you can expect to be receiving rental income for 49 weeks of the year. For many landlords in Kuala Lumpur these occupancy rates can only be dreamed of, as occupancy rates sit around 70% in many areas.
As a rule of thumb, we see rental returns of 3.5-4.5% in Melbourne, 6-8% in Manchester, and 3-4% in London. For an investment of RM1,000,000 this would give returns of between RM30-80,000 per year after all costs have been deducted. All of this can be saved in the currency in which it is earned and used to cover expenses for your children’s education, or reinvested into further property.
An overall comparison
If we invested RM1,000,000 in 2012 we can see the overall return this could have generated from capital appreciation, currency growth and rental income for the five years to 2017 over our three university cities, compared to a fixed deposit in Malaysia.
Fixed Deposit, Malaysia: RM160,000 [16%]
Clayton (Melbourne), Australia: RM670,800 [67%]
Manchester, UK: RM1,007,295 [101%]
Stratford (London), UK: RM1,016,835 [102%]
So we can clearly see how, over just five years, our investments in Australia and the UK have generated returns which cover the total costs for university education in Australia or the UK. In the case of Manchester and London these costs have been covered almost twice over!
Now imagine if you were able to invest just a fraction of that (our minimum investment value is RM110,000) at your child’s fifth birthday. You could quite realistically assume your investment returns would cover your education costs by the time your child reaches her eighteenth birthday.
Want to learn more?
At Reapfield International we are passionate about helping clients reach their financial goals, with a fully transparent, end-to-end service, at zero cost to you. If you would like to learn more, then contact our consultant (Cheah 012-2338933).
Article by Joel Waller
Reapfield International CEO