The outlook for buy-to-let property in 2019 does not look so good, in my view, for a number of reasons.
Falling house prices
For starters, UK house prices could take a significant hit if Brexit backfires. Just a few weeks ago, the Bank of England stated that house prices could potentially fall as much as 30% in the event of a no-deal Brexit.
Then, there are rising interest rates to consider, which could further reduce the demand for property. As money expert Martin Lewis said last week: “Mortgage rates are still near historic lows. There isn’t that much room for interest rates to drop, and lots of room for them to rise.”
Next, there is the extra stamp duty on buy-to-let properties as well as the cuts in mortgage interest tax relief, which make owning a property significantly more expensive. Yields on buy-to-let properties are already generally quite low, simply because rents have not kept up with house prices over the last decade.
Finally, there’s a tonne of regulation that’s hitting the buy-to-let sector, such as landlord licensing and minimum energy rating requirements, which makes the whole process much more of a hassle.
In short, buy-to-let property investing just doesn’t look to have the same appeal that it has had in the past.
So what are some other investment areas that offer potential in 2019?
One asset class that I like right now is what’s known as ‘real assets’. These are tangible/physical assets that yield long-term income that is often linked to inflation. It’s a broad asset class that includes things such as infrastructure assets, storage warehouses, retirement villages, and office buildings.
Real assets often have a low correlation to more traditional assets such as equities and residential property, meaning that they can offer investors diversification benefits, especially if investors take a global approach to the asset class.
Examples of real asset investments here in the UK include Tritax Big Box, which owns a portfolio of large logistical facilities, Primary Health Properties, which owns a portfolio of healthcare properties, and Big Yellow Group which owns storage facilities. All three pay solid levels of income.
High-quality global companies
Given the current uncertainty from Brexit, I also think that UK companies that have substantial international operations are a good bet going forward. I’m talking about truly global companies such as consumer goods champions Unilever and Reckitt Benckiser, alcoholic beverage giant Diageo, and tobacco firm Imperial Brands.
These kinds of companies sell their products all over the world, and they also have strong exposure to the fast-growing emerging markets, which provides a growth story going forward. This means that they should offer some protection from Brexit. For example, if the pound falls further, their earnings will actually increase. All of these companies pay healthy dividends too, and all four have strong long-term track records of increasing their dividends over time, which is another big plus.
So in summary, while the outlook for buy-to-let property does not look so hot right now, there are plenty of other income-generating investments that look interesting at the present time. As always, building a diversified investment portfolio is the key.
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Edward Sheldon owns shares in Unilever, Diageo, Imperial Brands, and Tritax Big Box. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo, Imperial Brands, Primary Health Properties, and 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.