The stock market crash hit UK housebuilders and other property shares disproportionately hard. That was understandable given the widespread economic uncertainty caused by the pandemic. As a result, those invested in the stock market may be tempted to look for alternate investments such as buy-to-let. But I think buying the best UK property shares after the market crash is a superior way to build wealth. Here’s why.
The problem with buy-to-let
The performance of the UK property market over the last couple of decades has been strong. Consequently, it’s not surprising that many people are drawn to investing in traditional bricks and mortar. However, the world of buy-to-let is not the oasis it once was for investors.
Changes to the way that buy-to-let properties are taxed has cast a serious cloud over things. Property investors now face an extra 3% stamp duty charge on the purchase of a second home. On top of this, mortgage interest tax relief has been cut. The reforms take the biggest toll on investors looking to buy just one or two buy-to-let properties.
Don’t get me wrong though, investing in buy-to-let offers the potential for both regular income and capital growth. In my view, however, buying the best UK property shares is an even better way to build serious long-term wealth. That’s especially the case for those without huge wads of cash available to begin with.
The best UK property shares
I’m thinking of companies like residential property developer Barratt Developments and UK housebuilder Persimmon. Both share prices are down significantly from the market crash and have failed to rise sharply in tandem with other stocks listed in the FTSE 100. This offers an extra margin of safety for those investing today and presents the opportunity to buy shares at a discount.
All of Barratt’s sites were back open by 30 June and the group is experiencing high levels of interest from customers. Pricing remained broadly stable throughout the period of the pandemic and the group’s forward order book is substantially larger than it was this time last year.
In addition, housebuilder Persimmon recently reported similarly positive news in that its build rate had caught up with normal levels by 30 June. Additionally, sales rates over the last month were ahead of the previous year, with the group’s average selling price actually rising above that of 2019.
Make a million
Provided the long-term outlook for the UK property market remains positive, I expect these companies to continue performing well. As such, I reckon investors could profit handsomely through a combination of share price appreciation and dividend payments, which should greatly boost your prospects of building a six-figure portfolio.
To illustrate, let’s assume an annual return of 8% (the average yearly return of the FTSE 100 is around 7%). After 35 years of investing £500 per month, you’d achieve an investment pot worth £1,078,202. So what are you waiting for?
The post Forget buy-to-let! I’d make a million from the best UK property shares appeared first on The Motley Fool UK.
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Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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 2020