Buy-to-let (BtL) property investing has lost much of its appeal in recent years. Not only have the tax breaks associated with rental properties almost disappeared, but stamp duty on BtL properties has also increased significantly, making the costs of owning a rental property much more expensive. Increased regulation is also making life more difficult for landlords.
However, if you’re looking for property exposure for your portfolio, there are plenty of alternatives to BtL. Here’s a look at two FTSE 250 property stocks you might like to consider.
Unite Group (LSE: UTG) is real estate developer and manager that specialises in providing student accommodation in the UK, currently providing homes for over 50,000 students across 28 cities. With properties that are located close to university campuses and transport links, the group offers bedrooms, security services and cleaning services to make sure that students have everything they need. The company’s strategy is to ‘recycle capital’ through the disposal of assets that have lower-than-average growth prospects and reinvest the funds into developments that are focused on high- and mid-ranked universities, which have the best long-term growth prospects.
It’s an interesting strategy and it appears to be working for Unite, with profits rising significantly over the last five years. Shareholders have been well rewarded, with the share price rising from around 375p to 880p, a gain of 135% in that time. Dividends too, have risen sharply from 4p to 22.7p per share since FY2012, with the expected payout for this year of 28.9p per share equating to a prospective yield of 3.3%.
Looking ahead, the future looks bright, with the company recently advising that the outlook for the business “remains positive” and that the fundamentals of the sector “provide a supportive backdrop.” A forward-looking P/E ratio of 25.7 may be a little expensive, but when you consider the company’s track record, I don’t think that’s an unreasonable price to pay for a slice in this property business. Its niche focus also brings diversification benefits to the table.
Another way to add property exposure to your portfolio is through house-building stocks. With the UK facing a massive shortage of affordable housing, and the UK government aiming to increase the annual number of homes built from 217,000 last year to 300,000 per year in the coming years, many of the house-builders should be able to continue to prosper, in my view.
One house-builder that stands out to me as a high quality company is FTSE 250-listed Bellway (LSE: BWY). Over the last 70 years, Bellway has grown from a small company in England’s Northeast into one of the largest house-builders in the UK. Just recently, it announced it’s completed 10,000 homes in a year for the first time in its history, which is an impressive milestone.
Like Unite, Bellway has been an excellent investment over the last five years, with its share price rising 125% and its dividend being hiked from 20p per share to 122p per share (one of the highest growth rates in the entire FTSE 350). And with a strong forward order book and “attractive” market conditions, the group looks well placed for further growth. Trading on a forward P/E of 6.6, the shares offer value, in my opinion.
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Edward Sheldon has no position in any 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.