Owning buy-to-let property has been an easy way to make money in the past. However, rising property prices, higher levels of taxation and increased regulation have made it harder to earn a decent profit in the industry over the past few years.
As such, it might be better to avoid rental property altogether and buy FTSE 100 property stocks instead. These businesses allow investors to own a piece of property without having to worry about property management, finding tenants or complying with regulation.
Here are two FTSE 100 property stocks that look attractive right now.
British Land Co
Pain on the high street has hurt investor sentiment towards British Land Co (LSE: BLND). The real estate investment trust (REIT) has significant exposure to retail property, and this has been having a negative impact on the value of the company’s properties.
However, recent trading updates show that management is coping well with the current environment, and is taking action to reduce exposure to retail property. British Land has been selling off non-core retail assets and reinvesting the proceeds back into office properties, particularly London office properties where demand is still robust.
At the same time, the company has been pursuing a multi-billion pound development pipeline, which should produce long term value for investors.
Even though the company is taking action to reduce its exposure to the retail sector, the shares continue to trade at a significant discount to net asset value. The stock’s price-to-book (P/B) ratio is just 0.72. When combined with its dividend yield of 5.4%, it looks as if the shares offer a wide margin of safety at current levels with scope for significant capital gains and income over the long term.
While Brexit uncertainty has impacted most companies negatively, recent trading updates from warehouse manager Segro (LSE: SGRO) suggest that this REIT is benefiting significantly.
Demand for warehouse space to accommodate stockpiling in the UK has helped push the company’s revenue to a new all-time high. At the same time, recent updates from the business show that its efforts to expand across northern Europe are also paying dividends.
In fact, it looks as if Segro can’t build new warehouses fast enough. At the end of October, the group had over a million square metres of new space under construction in the UK, France (Paris) and Germany. The overall vacancy rate across the portfolio was just 4.9%, and new rental agreements have been signed with rental uplifts of as much as 20% in some places.
These figures suggest that while shares in Segro might look expensive, the REIT has the potential to generate substantial capital gains and a steady passive income stream for its investors over the long run. A dividend yield of 2.3% and a P/B ratio of 1.3 might not look like much, however, over the past five years, the company’s book value has grown at an average annual rate of 17% and the per-share payout to investors has increased at 6% per annum.
Considering, Segro’s growth pipeline, it looks as if this trend is set to continue.
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Rupert Hargreaves owns shares in British Land Co. The Motley Fool UK has recommended British Land Co. 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.