What is worse for Student Housing Australia is that international students tend to live together so s to share rentals and bills as well as build social connections. For instance, if there are 1000 international students, originally, they could rent 1000 units to live. However, due to the reason explained above, 2 or 3 international students would like to form a group to rent one apartment, the total number of apartment rent will be reduced below 500 units. In this case, the rentals will drop sharply, and the return for Student Housing Australia will decline dramatically in turn.
In addition, Owners Corporation of Student Housing Australia will only sell up o 50 percent of the apartment complexes within each building and leave the rest 50 percent for its own investment (Calculator & Dooley, 2010). The half part they sold to potential investors is the most profitable one, as the rent received from international student will be relatively low and lasts a quiet long period. Furthermore, in order to gain access to an entire block of units from the same development, ties or contracts must have been made with such developer.
What is worse, according to Malaysia’s policy, foreign investments are limited up to 50 percent ownership of a block area. Some land are even reserved by Malaysian government (Calculator & Dooley, 2010). Under these circumstances, if Student Housing Australia intends to purchase a land near one target university, however, they have missed the most appropriate time to contact the developer that the land is already open to individual landlords or it is only capable of purchasing less than half of area, both situations are bound to cause inconvenience and difficulties for Student Housing Australia to manage and control.
If they are able to purchase an entire block of units, they can agitate with the developer to obtain a discount on purchasing or other kinds of privileges. On the other hand, if they fail to buy the entire area, they have to buy units separately from different developers or compete with individual landlords, both cases will cost Student Housing Australia a greater amount of money. Last but not least, as there are an increasing number of international students coming to Malaysia to study, the student accommodation sector is booming.
Everyone would try to make a profit in the field. Hence, when Student Housing Australia enters into Malaysian market, it would face a fierce competition. According to Porter’s Five Forces Model (Porter, 2008), new entrants pose great pressure on prices, costs and the rate of investment necessary to compete. Therefore, a cap has been put on the profit potential of student housing industry. Moreover, bargaining power can be exerted on participants by suppliers, through raising prices, or reducing the quality of goods and services purchased (Porter, 1980).
If the demand of student accommodation is more than supply, suppliers will increase the prices. As a consequence, Student Housing Australia may have to put a huge amount of initial investment into purchasing apartments, which make it even worse to gain profit within a short time period. Solutions The first solution for Student Housing Australia is to limit the number of international students to live in one apartment. They can set a specific regulation to prohibit more than two persons living in one apartment.
If violate this rule, fines will apply to each of the tenant. In this way, they can guarantee a certain number of units to be rent, and the rentals will be in line with the tenants’ number. Meanwhile, Student Housing Australia should develop their own competitive advantage, which is the strategic advantage of a business over its competitors to have advantage in the market (Mira et. Al, 2012). Another solution is to change the proportion of apartment complexes sold within one building.
Owner Corporation may sell up to 60 percent of units and retain the rest for its own investments. Under this circumstance, Student Housing Australia is able to recoup more than half of the initial investment and they can use this fund to acquire and expand new investment. Alternatively, before entering into Malaysian market, Student Housing Australia must negotiate with developers about the contracts and make sure they can have access to the whole area of units before the units open for sale to individual landlords.
Last approach is to carry out a market research in advance concerning the student housing industry in Malaysia to have a better understanding about the competition environment, the policies and the culture. It must have gain a knowledge of the barriers to entry, namely the six major sources economies of scale, product differentiation, capital requirements, cost disadvantages independent of size, access to striation channels and government policy to determine whether they should enter into Malaysian market (Porter, 1979).