Many Britons seem to have a love affair with residential property. Investing in buy-to-let has become very popular over the past few decades. And strong price rises over time have made ‘property’ a frequent national news headline.
If you own investment property, your fortunes will be tied to the ebb and flow of the housing market. It has been one of the sectors that has suffered since the 2016 Brexit vote. The Covid-19 lockdown and economic contraction also put a big pause on housing activity. Put differently, housebuilding is a cyclical boom-and-bust industry.
As lockdown ends, there are signs that the housing market is likely to benefit from increased activity that may follow in the summer. Let’s take a closer look at how share investors can benefit.
Buy-to-let property investing can be difficult
We live on an island, which by definition has limited space. Population growth means more demand for the same supply. Since there will always be a need for real estate, investors looking for passive income have traditionally considered owning property as a top choice.
But becoming a landlord can easily turn into a full-time job when one has to mortgage, buy and manage several properties, collect rent, deal with estate agents as well as tenants, and maintain the property to a high standard.
Since 2015, there have also been several changes to tax laws in the UK, making it more complicated and expensive to become a buy-to-let property landlord.
Investors like property for rental returns, but it would be important to factor-in additional costs to the equation. They include estate agent management and letting fees, weeks or even months when the property is vacant, and maintenance costs.
If you’re finding the prospect of investing in UK property difficult, many analysts would remind you that as part of a diversified portfolio, there is genuine merit in having exposure to property.
So, could there be a better way for investors who may not have the time or the capital to build or maintain a real estate portfolio? Yes. Investors could easily buy top housebuilders and estate agents listed in the FTSE 100 or the FTSE 250 indexes.
Which FTSE shares to research
Over the years, real estate has continually proven to be a solid investment. According to the most recent figures from the Office for National Statistics “UK average house prices increased by 2.1% over the year to March 2020“.
Which property companies am I watching right now? If you’re interested in researching housebuilders, then Barratt Developments, Bellway, Berkeley Group, Countryside Properties, Crest Nicholson, Persimmon, Redrow, Taylor Wimpey and Vistry Group deserve to be on your radar.
Are you also looking at real estate agents? Then you may want to do due diligence on Foxtons, Rightmove and Savills.
Foolish takeaway on property investing
The UK property market is one of the most significant sectors of our economy. Property is a tangible asset that many people are familiar with. But that doesn’t necessarily make it a better investment than buying into FTSE shares of companies within the industry.
2020 has witnessed a downturn in broader equity markets. Yet investor confidence is beginning to return both to the housing market and FTSE stocks. Market participants now have the opportunity to pick up some quality stocks that operate in the housing industry relatively cheaply.
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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow and Rightmove. 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.