With the prospects for the buy-to-let industry being highly uncertain, now could be the right time to focus on listed property stocks.
Changing regulations, increasing difficulty in obtaining a buy-to-let mortgage and rising stamp duty could mean that the profitability of investing directly in property is reduced over the medium term.
At a time when a number of mid-cap property stocks continue to trade on low valuations, the risk/reward opportunity from buying them could be more enticing than a buy-to-let.
As such, these two FTSE 250 stocks could be a better means of seeking to make a million from property over the long run.
Property investment and development specialist St. Modwen (LSE: SMP) released an encouraging set of results for the first half of the year on Tuesday. The company is on track to meet guidance for the full year, with it focused on growth following the sale of non-core assets last year. As a result, it has increased its housebuilding volumes and industrial and logistics development activity compared to the same period of the previous year. This is expected to lead to an improving return on capital over the long run.
With the company’s net asset value per share increasing to 493p, St. Modwen now trades on a price-to-book (P/B) ratio of just 0.9. This indicates that the stock offers good value for money at a time when it is difficult to find cheap buy-to-lets in a number of regions of the UK.
Although the stock currently has a dividend yield of just 1.8%, it has increased dividends per share at an annualised rate of 11.5% over the last four years. This suggests that the company could offer improving income investing potential over the long run.
Great Portland Estates
Also offering a wide margin of safety within the property sector is real estate investment trust (REIT) Great Portland Estates (LSE: GPOR). The company currently trades on a P/B ratio of 0.8, which indicates that it is undervalued at the present time. This could mean that, over the long term, it offers significant capital growth potential.
With the company’s asset base being focused on London’s West End, it may offer greater defensive qualities than many of its industry peers. The area has a track record of holding up well in terms of its rental and valuation performance during even the most challenging of recessions. As such, even though Brexit may cause some investor uncertainty, it may not lead to particularly difficult operating conditions for the business.
Since Great Portland Estates has increased dividends per share by 8% per year over the last four years, it could offer a rising income for investors. Therefore, while it yields just 1.8% at the present time, it could deliver an impressive total return over the coming years.
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.