Investing in property
UK property prices have been pretty flat while Brexit has been hanging in the balance. Not to mention the other political instabilities spooking homeowners into largely staying put. However, there are plenty of ways to profit from the UK housing market by using your savings to back companies in the property industry.
There are lots of house building companies in the UK. Now that Brexit is done many experts agree they have a strong future. Barratt Developments is the country’s largest housebuilder by sales and its shares were the best performers in the sector last year, rising by 61%. This week it announced plans to pay shareholders a £350m special return over the next two years in a demonstration of its confidence in the housing market.
Housebuilder Vistry, formerly known as Bovis Homes, is also set to perform well. At the end of last year, it reported a record adjusted pre-tax profit of £181.6m for 2019, slightly ahead of estimates. This displays a decent comeback having suffered problems in build quality in late 2016 and early 2017.
London-focused house-builder Berkeley Group owns a land bank of sites that will ensure it has plenty of growth. It recently committed to increasing its delivery of homes by 50% over six years. Last month it revealed plans to return £1bn to shareholders over the next two years, an increase on a previous promise.
You could also make money from those who spend lots of time and money updating their homes. Backing British would mean looking at Dunelm and Next.
Dunelm, which sells cushions, bedding and kitchen equipment, has its own manufacturing centre producing curtains, blinds and other accessories. Share prices have jumped by 50% since the beginning of December. City broker Numis this week described the firm as “uniquely positioned to dominate online and offline as its market share growth accelerated”.
Next has been another darling of the UK. Its share price surged 47% over the past 12 months and is adding stores where internet shoppers can easily collect purchases the very next day.
Buying stocks direct is too risky for some, as is working out if it’s a good time to buy. That’s why it’s often better to let the professionals handle that side of things and invest through a fund. There are plenty of managers who are very positive about UK stocks linked to property and housing.
Two examples are:
- The Axa Framlington UK Mid Cap fund, which currently holds £4.1bn worth of saver’s money, is pretty geared towards housing and property. Bellway and Dunelm feature in its top 10 holdings. It also holds Marshalls, a manufacturer landscaping products, supplying the construction, home improvement and landscape markets. Another of its top 10 holdings is Grainger, a residential property business. It has turned a £10,000 investment into £16,417 over five years.
- The Franklin UK Mid Cap fund, which currently holds £1.3bn worth of saver’s money, holds Bellway in its top 10 holdings as well as rival builder Redrow. A £10,000 investment made five years ago would now be worth £17,141.
A retail property fund with a difference is the TM Home Investor fund, the UK’s first FCA-authorised residental Property Authorised Investment Fund (PAIF). The fund invests in the private rented housing sector in the UK and aims to capture UK house price growth as well as provide an element of income return. It has returned 25.92% over five years, net of ongoing charges, so £10,000 invested five years ago would now be £12,592. The fund is available on most direct investment platforms as well as at its own portal homeinvestor.fund.
For buy-to-let investors, this is a good alternative now that buying a second property incurs an additional 3% stamp duty. Another feature in its favour is that it can help diversify portfolios that are invested in traditional asset classes such as equity. It’s also a long-term stable way of saving for a future house purchase as the returns are much less volatile than equity funds.
Of course, property and housing is just one of many themes to explore. What’s needed is a diversified portfolio, with funds that have a mix of investment styles and sectors.
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