The Motley Fool

How I think property investors can profit from house price falls

Property investors aren’t having a great time of it right now, with a number of real estate shares crashing. Housebuilders are having a tough time too, with share prices falling across the sector.

The latest news on house prices has added gloom to the mix too. According to Nationwide, UK house prices fell in May by the largest amount since the financial crisis, 1.7%. Bank of England mortgage figures look bad too. April saw approval ratings down 80% on February.

But I have to stop and think there for a minute. Are property investors in the least bit surprised? The Covid-19 lockdown pretty much brought a halt to mortgage applications, and the level of house sales has been restricted. In the circumstances, a 1.7% fall in house prices shows remarkable resilience to me. We could have seen a collapse, but all we’ve suffered is a relatively minor dip.

Looking at the events of the last month or two tells us nothing about long-term prospects for property investors. And the long term is where investors should be looking.

Shares in real estate investment trust (REIT) British Land Company were coming back last time I looked in late April. But investors wanting a second bite of the cherry got the chance when the price dipped again. The recovery looks on again now, getting a boost from delayed results on 27 May. The key thing for me with stocks like this is liquidity, and I see no problems. The company reported “£1.3bn undrawn facilities and cash with no requirement to refinance until 2024“. Debt is low too, with a loan-to-value ratio of 34%.

A REIT I’d buy, and one I’d avoid

Since a low in early April, British Land shares have climbed 45%. But they’re still down 29% since the start of 2020, and I still see a long-term buy for property investors.

British Land investors have had an easy time compared to Intu Properties shareholders. Intu shares are down a scary 72% this year, but they are showing signs of recovery. The price has more than doubled since it’s bleakest point of the year, but there’s still a long way to go. Worryingly, Intu’s loan-to-value ratio stood at 68% at year-end. The company is struggling to take in its rents, so there’s a cash squeeze too. I’d stand back from this one.

Should property investors buy housebuilders?

Another approach for property investors is through housebuilders. As one example, I’ve seen Taylor Wimpey as undervalued for some time now. Taylor Wimpey has suspended its dividend, but I see that as exercising an abundance of caution. It’s actually something I’d like to see companies doing more often, as far too many keep paying out the cash until it’s too late.

Taylor Wimpey shares did lose nearly half their value in the early days of the crash. But they’ve recovered strongly to stand just 18% down year-to-date. I see that as a vote of confidence from property investors.

I think the UK’s other big housebuilders are good long-term buys now too. And I reckon we’re in a good spell for property investors.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Alan Oscroft has no position in any of the shares mentioned. 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.