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The Best Play On The UK Property Boom!

foxtonsThe UK property market is booming, with annual house price growth accelerating to 8.4% in August — the highest rate of growth for nearly seven years.

And there are plenty of ways for investors to profit from this trend: Zoopla (LSE: ZPLA)Rightmove (LSE: RMV)Foxtons (LSE: FOXT)Persimmon (LSE: PSN) and Barratt Developments (LSE: BDEV) are just five possibilities. 

Online shopping 

Property websites Zoopla and Rightmove are two companies that have seen profits surge as a result of the current property boom. Zoopla, for example, recently reported that its websites and mobile apps were seeing a record level of traffic, with 45.5m average monthly visits during the second quarter of the year, an increase of 34% year on year. 

With levels of website traffic surging, Zoopla’s management remains confident that the group can hit the City’s full-year earnings targets set out for the company. The City currently expects Zoopla to report earnings per share of 6.8p this year, rising 31% to 8.9p next year. 

Rightmove is also experiencing rapid growth. Current City forecasts expect Rightmove’s pre-tax profit to jump 21% this year, followed by growth of 14% to £113m during 2015. Both Zoopla and Rightmove are benefiting from a strange phenomenon called ‘property porn’; essentially, the trend of people viewing homes with no intention to buy. This is frequently quoted as the reason why traffic to these sites is surging. During January of this year, visitors to Rightmove’s website viewed a total 1.45 billion pages of property, making Rightmove one of the UK’s top websites in general.

Agent fees

If you’re not a fan of ‘property porn’ then Foxtons offers an attractive alternative. Foxtons is London’s leading estate agent and has made a tremendous amount of money from the property boom in the capital.

Indeed, for the first six months of this year Foxtons’ pre-tax profit rose 57.1%, to £23.1m and revenue grew 16.2%, to £72.8m, driven by strong sales and mortgage-broking growth. However, the market reacted badly to these results, sending the company’s shares down around 5% after their release.

Unfortunately, these declines could have something to do with the company’s valuation, which could be too rich for some investors. Foxtons currently trades at a forward P/E of 14.6, although City analysts have a dividend yield of 4.7% pencilled in for this year, which is appealing. 

Bricks and mortar 

The third way to profit from the property boom is with the homebuilders. Persimmon and Barratt Developments are two of the sector’s best picks.

Persimmon for example has become an income stock, as management seeks to return cash to investors following several years of solid performance. In total, the company is looking to return £1.9bn to investors, or around £6 per share. Some distributions have already taken place as the company paid two separate special dividends totalling £1.45 per share, or £442m, on 28 June 2013 and on 4 July 2014.

The third payment is scheduled for July 2015 and is expected to be around £0.95p per share, for a total of £290m. City analysts believe that these special payouts will equate to a dividend yield of 7.4% for next year alone. 

Barratt is also an income play. The company has just hiked its dividend by more than 300% to 10.3p per share, alongside full-year results. At present levels this payout is equal to a yield of 2.5%. However, like Persimmon, Barratt’s management has decided to offer investors several special dividends. Barratt’s special cash payment programme is expected to return £400m to shareholders over three years, with the first payment of £100m scheduled for November 2015.

The bottom line

There are plenty of ways to play the UK property boom but as always, I would strongly suggest that you do your own research before making any trading decision.  

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