The prospects for buy-to-let investors continue to be highly challenging. Stamp duty increases, changes to mortgage interest relief and weak house price growth are just a few of the difficulties they face that could lead to lower returns in the long run.
As such, now could be the right time to consider gaining exposure to the property market through shares, rather than a buy-to-let. After all, a number of FTSE 100 housebuilders currently trade on low valuations which suggest they offer good value for money.
With that in mind, here are two large-cap shares that could provide impressive return prospects. While not without risk, their investment appeal as part of a wider portfolio of stocks could be significantly higher than a buy-to-let property at the present time.
Recent updates from Barratt (LSE: BDEV) have helped to reassure investors that the housebuilder is delivering an impressive financial performance despite weakness in the wider property market. Government policies such as Help to Buy and stamp duty relief for first-time buyers are helping to catalyse the wider industry and provide resilient demand for the company’s properties.
Looking ahead, Barratt is forecast to record a 1% decline in its bottom line in the current year. However, its financial performance is largely dependent on political developments. Should they prove to be favourable in the eyes of investors, its price-to-earnings (P/E) ratio of 8.8 suggests there is significant room for capital growth.
In the long run, the company may stand to benefit from a lack of supply and increasing demand for its homes. Due to it being well-run, in terms of having a solid balance sheet and a large supply of land, its long-term prospects could be relatively bright.
Another FTSE 100 housebuilder that could be a strong performer over the coming years is Berkeley (LSE: BKG). The housebuilder’s focus on London may have counted against it in recent years, with the capital’s property market underperforming many other UK regions as uncertainty regarding Brexit has been relatively high. However, London’s historic house price performance suggests that it could offer long-term growth.
Berkeley’s P/E ratio of 13.4 continues to offer good value for money even after its recent share price spike. The company’s strategy that focuses on long-term projects which may provide greater stability and higher returns versus sector peers could lead to impressive capital growth for its investors. It also has a generous capital return programme that could produce a dividend yield of up to 4% per annum over the medium term.
Certainly, the stock could experience a period of volatility in the short run if political risks continue to be high. But as a cyclical stock, now could be the right time to buy a slice of it while it offers a wide margin of safety.
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Peter Stephens owns shares of Barratt Developments and Berkeley Group Holdings. 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.