While the long-term prospects for the UK housing market may be positive, capitalising on it through property shares may be a better idea than undertaking a buy-to-let. Certainly, low interest rates make borrowing more attractive. But with buy-to-lets lacking diversity and being illiquid, they also carry significant risks.
At the same time, a number of property-related shares in the FTSE 100 and FTSE All-Share seem to offer good value for money at the present time. Here are two prime examples that could deliver superior higher risk/reward opportunities than a buy-to-let.
Reporting on Wednesday was property investment and development company Helical (LSE: HLCL). It released a trading update which highlighted the good progress being made on its current development pipeline. It has completed the second and final phase of its London development, The Bower. It will also complete the first residential phase at another of its London developments, Barts Square, by the end of November.
The company has made encouraging letting progress during the period across its London and Manchester portfolios. The recent disposal of The Shepherds Building has improved its financial strength. The potential to recycle the equity released from the sale into new projects could lead to higher levels of profitability.
Looking ahead, Helical is forecast to post a rise in earnings of 46% in the next financial year. This puts its shares on a price-to-earnings growth (PEG) ratio of 0.7, which suggests that they offer good value for money. As such, now could be the right time to buy them for the long term.
Also offering the potential for high capital returns in the long run is FTSE 250 housebuilder Bovis (LSE: BVS). The company has employed a revised strategy in the last couple of years that has focused on a slower rate of growth, with an increasing focus on customer satisfaction and quality. This has been a sound move, since it was experiencing significant levels of complaints from customers regarding issues with new-build properties.
With a stronger foundation now in place, the company has the potential to ramp up its number of completions over the medium term. This is expected to contribute to a rise in earnings of 42% in the current year, followed by additional growth of 15% in the next financial year. Despite such as strong rate of forecast growth, the stock has a PEG ratio of just 0.8 at the present time.
Clearly, Brexit poses a risk to the near-term prospects for the business. Consumer confidence is weak, and this may lead to some uncertainty in the housing market. However, so far house prices have been robust, while demand for new-build properties has been high. This suggests that the imbalance between supply and demand may continue over the long run, leading to higher levels of profitability for housebuilders. As such, now could be the right time to buy Bovis, with it seeming to offer a wide margin of safety.
According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…
And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...
It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…
But you need to get in before the crowd catches onto this ‘sleeping giant’.
Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.