The investment case for buy-to-let property doesn’t look good right now. There are so many different headwinds facing the asset class, it’s hard to see how buy-to-let can continue to produce the high single-digit annual returns it has done for the past decade. Brexit uncertainty, rising interest rates, an uncertain outlook for UK property prices, higher stamp duty for buy-to-let properties, increasing regulation, and rent stagnation are just some of the factors that mean the outlook for landlords is now nowhere near as promising as it has been in the past.
With this being the case, I believe there are now better places to invest your money than buy-to-let. Equities are at the top of my list.
Take the e-commerce sector, for example. Over the past 12 months, we’ve heard plenty about the death of the UK high street, but the other side of this equation is the boom in online shopping. Demand for warehouse space has exploded, and so have the bottom lines of companies that specialise in buying and leasing out these properties. As more and more retail shifts online, it doesn’t look as if this trend is going to come to an end anytime soon.
The shifting sands in the retail sector is just one of the trends that look set to produce more profit for investors in the near term than buy-to-let investing.
The best performing stock in the FTSE 250 this year is Hikma Pharmaceuticals. Hikma is one of the world’s leading pharmaceutical businesses, specialising in the production of low-cost generic medicines.
As the world’s population continues to expand, the demand for affordable healthcare is only going to increase. And for companies like Hikma, the only way is up.
Healthcare has always been a safe industry to invest in, and over the past decade, healthcare returns have far exceeded those from property. An index of the world’s largest healthcare companies has returned 15.1% per annum since 2008, compared to just 11.1% for a global property index.
Another theme that’s almost certain to produce buy-to-let-beating returns over the next few decades is emerging markets.
While politicians here in the UK are trying to cool the UK housing market, analysts believe emerging market growth will only accelerate for the foreseeable future. Regions such as Africa and India have desirable demographics, such as young populations with rapidly-improving skill sets, and low penetration of financial products. Technology has opened up these markets for Western companies, and they should continue to register impressive growth, no matter what happens here in the UK or across Europe.
Investing in emerging markets is relatively easy today. All you need to do is buy a highly-diversified emerging market-focused ETF. This will give you instant exposure to thousands of companies across the developing world.
So overall, I believe it’s time to give up on buy-to-let as returns from this asset class stagnate. I reckon investors would do much better putting their money in other key global investment themes, such as emerging markets, healthcare and e-commerce.
Not only will these asset classes produce better returns, in my opinion, but they will also protect your portfolio from any Brexit fallout.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.