The prospects for buy-to-let continue to be relatively uncertain. Higher stamp duty for second homes, reduced scope for mortgage interest relief and a number of other tax changes are making the prospect of becoming a landlord less appealing.
As a result, buying listed property shares could be a sound move. They may provide greater liquidity, offer less risk and could even generate higher returns on an after-tax basis. With that in mind, here are two property stocks that could be worth a closer look in my opinion.
Releasing news on Friday was real estate investment trust (REIT) PRS REIT (LSE: PRSR). The company is focused on investing in new-build homes in the private rented sector. It released news that it has signed contracts on four new development sites. Two are being acquired immediately, while it has entered into forward contracts for the other two sites. The four sites are together expected to deliver a total of 464 new family rental homes for a gross development cost of £68.2m.
Once fully let, the sites are expected to yield around £4.2m per annum. Following the acquisition of the additional development sites, the company will have a total of 36 sites that are either completed of contracted. The estimated rental value of the sites is £28m per annum.
With the popularity of build-to-rent increasing, PRS REIT could have a bright long-term future. Interest rates are due to rise in the coming years, and this could price many people out of the property market. With a 4.8% dividend yield, the stock could offer impressive total returns.
Also offering an impressive outlook within the property sector is Tritax Big Box (LSE: BBOX). It is another REIT, and its focus on logistics and warehousing could provide it with a tailwind in the coming years. As online shopping grows in popularity, demand for well-located, large distribution centres is likely to rise. It could therefore benefit from increasing rents over the long term, which could provide rising dividend growth prospects.
With the company currently having a dividend yield of 4.5%, it may offer a stronger income return than many buy-to-let opportunities at the present time. It also has a strong track record of dividend growth, with shareholder payouts rising by 15% per annum over the last three years on a per share basis. Further dividend growth of 4.4% per annum is forecast over the next two years.
While a number of property segments, including residential, could experience challenges over the near term as investor sentiment remains weak, Tritax Big Box could offer relative stability. Its focus on the long-term and exposure to what could be a growing industry may provide it with significant growth catalyst in future. Since it trades only marginally higher than its net asset value at the present time, it could offer a margin of safety as well as capital growth potential.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT. 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.