Forget buy-to-let! These shares could be the best way to profit from property

Can these shares give you exposure to the upside of a thriving housing market without the hassle?

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New stamp duty taxes may have contributed to a slump in buy-to-let mortgage lending over the past quarter, but according to the BoE’s latest statistics a full 15% of outstanding mortgage value today is still for buy-to-let properties. But, for those of us who don’t want the hassle of owning a second or third property (and tying up a large amount of cash that can’t be accessed quickly), can the stock market be a great way to benefit from our obsession with home ownership?

One market favourite recently has been online property listing firm Rightmove (LSE: RMV). The reasons for its popularity are clear: 77% market share, operating margins of 74.7% over the past six months, steadily increasing dividends and share buybacks, and a major shift in the way people shop for property.

The downside for those on the outside looking in is that investors enamoured with these qualities have piled into the shares at a rapid clip and they trade at a lofty 30 times forward earnings.

To live up to this valuation, Rightmove needs to continue growing like a startup rather than the £3.8bn juggernaut it has become. While the past six months saw growth in the number of agency customers only rose 1%, it was able to squeeze enough extra sales out of existing customers to increase revenue per agency by a full 12%.

The good news is that continued double-digit growth in website visits means estate agents will pay a premium to list on Rightmove. What will be interesting to watch is whether it can expand its domestic dominance abroad. Non-UK estate agents already account for 13% of total customer numbers and if Rightmove can expand this number fast, it may be able to live up to current valuations.

At the end of the day, Rightmove’s fortunes remain largely tied to the health of the domestic housing market, but it’s partly insulated thanks to charging agencies a subscription fee rather than per listing. And with the average monthly fee only £789 it would take a sustained and dramatic downturn for agents to begin cutting back on its services.

Purple patch

For the more risk-hungry investor an interesting option is Neil Woodford-backed hybrid online estate agent Purplebricks (LSE: PURP). That business description is a mouthful, but it means Purplebricks will list your home on its site for a fixed fee, rather than the percentage of sale price traditional estate agents charge, and provide the assistance of a local, self-employed estate agent.

This business model gives it a differentiator in a profusion of online estate agents and provides customers with greater peace of mind for such an expensive and life-changing transaction.

The market for Purplebricks’ services is massive as sellers increasingly balk at paying up to 2.5% of the sale price to estate agents who may do no more than list a property on Rightmove. This is evidenced by the 448% increase in year-on-year revenue for Purplebricks.

Now, the company is only two years old so this growth should be taken with a heap of salt. Furthermore, it was lossmaking to the tune of £10.5m last year due to high marketing spend. But with a multibillion pound market to disrupt and the company expecting its first profits next year, Purplebricks may be worth following for growth investors.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Rightmove. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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