UK Markets close in 6 hrs 7 mins

Is buy-to-let FINALLY making a comeback?

Royston Wild
Models of houses on top of pound coins

We’re not big fans of buy-to-let here at The Motley Fool. The stratospheric property price gains of yesteryear, rises which created scores of millionaire landlords the length and breadth of the country, have passed.

At the same time, operating costs have increased along with landlords’ tax liabilities their rights in matters like evictions have been stripped down, and the mounds of paperwork associated with buy-to-let ownership have shot through the roof. It’s no wonder proprietors have been leaving the sector in their droves over the past year.

Is demand rebounding?

Are signs emerging that investor attitudes towards buy-to-let are beginning to improve, though? A glance at latest figures from UK Finance may suggest so. The body advises there were 5,500 buy-to-let home purchase mortgages completed in May, the same number printed in the corresponding month in 2018. This was the second successive month in which purchases for rental purposes remained stable year-on-year following heavy reversals in prior months.

It’s been suggested the Brexit deadline extension from March 31 to the last day of October has encouraged investors to come out of the woodwork though, if true, I find it hard to fathom. And I’m sure my Foolish colleagues would agree.

After all, the uncertainties of the European Union withdrawal process in the short term and beyond remain considerable. And moving away from Brexit, those diminishing returns and increasing regulatory headaches for landlords represent one heck of a problem. And its one that’s getting ever-worse, given the government’s sharpening strategy of freeing houses for first-time buyers by forcing landlords out.

Gaelic goliath

A much better way for individuals to get exposure to property, I believe, is by buying one of the big-dividend-paying shares which the London Stock Exchange has to offer.

Take Cairn Homes (LSE: CRN) for example. Much has been made of the colossal housing crunch here in Britain, but there exists a shocking shortage of new homes on the other side of the Irish Sea too. And as the likes of Taylor Wimpey and Redrow are doing on these shores, Dublin-based Cairn is ramping up build rates to take full advantage of this.

And why wouldn’t it? Revenues and profits more than doubled in 2018, thanks to ripping homebuyer demand and that supercharged construction activity at the business. No wonder it announced plans in March to open another five sites to build an extra 2,200 homes, adding to the 4,400 it already had sitting in the pipeline.

It’s not a shock to see analysts predicting a near-90% earnings surge in 2019, and it’s quite probable the bottom line will keep galloping at a spectacular rate. Ireland’s Economic and Social Research Institute estimates 35,000 new homes will be needed each year over the medium term, almost double the current annual build rate. And given the lack of government work on this front, such a shortfall looks set to persist, underpinning business for the home creators like Cairn.

One final thing. At current prices, Cairn trades on a cheap forward P/E ratio of 14.9 times and carries a bulging corresponding dividend yield of 5.8% too. All things considered, I think the Irish builder is a much, much better bet than buy-to-let right now.

More reading

Royston Wild owns shares of Taylor Wimpey. The Motley Fool UK has recommended Redrow. 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.

Motley Fool UK 2019