There are plenty of things that we here at The Motley Fool don’t agree on, but we are united in our bearish view of the buy-to-let segment for 2019 and beyond. Rents are sliding, tax relief is receding, fresh interest rates are threatening to rise again, and the regulatory hoops that landlords have to leap through are rapidly increasing. It’s a market whose popularity is dropping through the floor at a shocking rate.
That’s not to say that avoiding property investment, and particularly that connected to the residential market, is a wise decision for next year though. Indeed, I’ve long argued that the UK’s chronic homes shortage leaves plenty of scope for the listed homebuilders to keep generating brilliant profits and market-beating dividends next year and beyond.
Risk-averse investors may be tempted to give builders with significant exposure to London like The Berkeley Group a wide berth given the rate at which property prices are falling in the capital. On the whole, though, the market remains pretty robust.
The latest report from the Royal Institution of Chartered Surveyors (RICS) illustrates this perfectly. In it the body advised that with “national house price growth likely to come to a standstill… the lack of supply should prevent outright falls.”
In fact, home values in some parts of the UK are actually flying, and price projections in the RICS survey suggested that they could continue to do so. According to the body, “Northern Ireland, the North West of England, Wales and Scotland continue to return firmly positive projections, implying price growth will retain solid momentum over the year ahead.”
Dividends + growth
Springfield Properties (LSE: SPR) was a share that sprang (no pun intended) to the front of my mind when reading the RICS report. It’s one of the biggest homebuilders in Scotland, and its latest trading statement this week underlined the strength of the market there.
The AIM company declared that it entered the financial year in June with a “strong and established pipeline” thanks to the growing requirement for affordable and social housing sector homes north of Hadrian’s Wall. This solid demand has continued in the first six months of the period, it said, meaning that sales and revenues across both its private housing and affordable divisions had increased compared with a year earlier.
With demand still outstripping supply, and the Scottish government continuing to help develop the country’s stock of affordable housing, Springfield said that it is “confident of delivering strong growth for [the] full year.”
City analysts are also pretty bullish on Springfield’s medium-term outlook and they currently predict an 8% bottom-line rise in the 12 months to May 2019. Not bad, but I can see this figure being upgraded to bring it closer to the 17% advance estimated for fiscal 2020, so healthy is the state of the Scottish market. Therefore Springfield’s low, low forward P/E ratio of 9 times seems to be even more of a bargain, in my opinion.
To cap things off, Springfield is also a great dividend pick thanks to its jumbo yields of 4.2% for this year and 5% for next year. All things considered, I think it’s a top buy, not just for 2019, but that it has the capacity to provide stunning shareholder returns for many years into the future.
