Much has been made of the huge supply/demand imbalance in the broader housing market. Things are particularly bad if you’re stuck in the rental sector, though. Shortages here have pushed tenant costs through the roof of late.
Latest data from peer-to-peer lending platform Sourced Capital shows how buy-to-let yields have ballooned. Right now the UK average sits at a healthy 4%, led by Scotland where the rental yield perches at 5.8%. Northern Ireland follows with a reading of 5.4%, then comes England with a yield of 4.1%. Investors in Wales have to be content with a yield below the nationwide average, at 3.6%.
Some of the yields on offer are quite staggering, too.
In line with those broader regional figures I mention above, Scotland leads the way from a more granular perspective. Data shows that 14 of the 20 best-yielding areas for yield sit north of Hadrian’s Wall, led by Glasgow City where the average rental yield sits at 7.8%. It’s followed by West Dunbartonshire and Inverclyde where readings sit at 7.2% and 7.1% respectively.
It is time to break out the chequebook and go buy-to-let hunting on Scottish terrain, then? Not in my book. Taking the plunge in the rentals market requires the sort of up-front costs that few other investment classes require. And investors are facing a toxic mix of rising costs and increased regulation, too. No wonder so many landlords are thinking of selling up and getting out.
Go to Eire instead
For those hellbent on investing in the rentals sector in some shape, however, there’s always the option to buy shares in Irish Residential Properties REIT (LSE: OQT8). This particular property play is a residential letting company specialising in Dublin and other major urban areas on the Emerald Isle.
Parking your investment cash here takes out much of the hassle, not to mention the expenditure associated with buy-to-let investing here in Britain. And like we see on these shores, Ireland is suffering the same sort of shortage of rental accommodation that is propelling rents to the stars. Consequently Irish Residential Properties enjoyed a near-18% improvement in EPRA earnings in the first half of 2019.
No wonder the company is investing heavily to boost its supply of properties. It recently agreed to acquire the Marathon Portfolio in a move that boosts its portfolio by 815 units. This now stands at 3,884 units, up 45% from late 2018.
City analysts expect the bottom line to keep swelling over the medium term at least, too. A 14% improvement in annual profits is forecasted for 2020 alone. This leads to predictions of more dividend growth, too and consequently a 4.5% forward payout yield.
A corresponding price-to-earnings ratio of 19.1 times might look expensive on paper. However, I reckon Irish Residential Properties’s mighty structural opportunities warrant such a meaty premium. I’d certainly rather buy this stock for my ISA than park my hard-earned cash in buy to let.
Royston Wild has no position in any of the shares mentioned.