Buy-to-let investing has taken a bit of a bashing over the past few years. With the introduction of an extra 3% surcharge in Stamp Duty, the phased reduction of tax relief on mortgage interest and stricter lending criteria brought in by the Prudential Regulation Authority, it comes as no surprise that many landlords are pessimistic over the future of sector.
However, that’s not to say that prospective new investors should simply avoid the property sector. There are other ways to get invested in property without becoming a landlord yourself. Via property-focused investment trusts and REITs, investors can still earn attractive returns without having to worry about finding a decent tenant or day-to-day management.
With this in mind, here are two property investment vehicles which may be worth a closer look.
Empiric Student Property (LSE: ESP) is a real estate investment trust which focuses on investing in the purpose-built student accommodation sector. Student property is a good substitute to investing in residential property, because due to the substitutability between student and residential properties, investors in the student property sector maintain a high level of exposure to UK house price movements.
Student property does however offer two key advantages over traditional residential buy-to-lets. First, student property is intrinsically more defensive, given the non-cyclical nature of demand for higher education, which means cycles of boom and bust have little impact on student numbers. As such, student property will likely fare better than most other property sectors in a downturn, in terms of the stability of vacancy rates and rental income.
Second, purpose-built accommodation typically commands a rental premium to similarly-located residential properties, due to the chronic shortage of modern, purpose-built student properties and the general preference of students towards living in such places.
Empiric Student Property has proposed a full-year dividend of 5p per share for 2018, giving prospective investors a forward yield of 5.1%. Dividend cover, which is currently at 60%, is expected to rise to at least 100% in 2019.
For investors looking for greater diversification, the TR Property Investment Trust (LSE: TRY) may be a better pick.
Unlike the vast majority of property investment vehicles, TR Property’s portfolio consists of both European-listed real estate investment trusts and direct property. The company’s direct property investments consist of a mix of retail, office and industrial properties — they are all located in the UK and currently represent just 7.4% of its total assets.
Focus on growth
In the REIT space, the company picks out well managed companies of all sizes, focusing primarily on future growth prospects and capital appreciation potential. There is a sizeable exposure to German residential property, with Germany’s largest REIT Vonovia being its single biggest asset (representing 11% of the total). Overall, the UK is still its largest geographical exposure, representing 40.9% of its assets, and this is followed by Germany (29.1%) and France (18.2%).
The fund is a top performer in the property sector — over the past five years, shares in the trust have returned 132%, nearly double the performance of its FTSE EPRA/NAREIT Developed Europe benchmark, which gained only 75%.
At the time of writing, shares in TR Property yield 2.9%.