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Why I’d buy these 2 property shares to ride the UK housing boom

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Sabuhi Gard
·3-min read
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Sun setting over a traditional British neighbourhood.
Sun setting over a traditional British neighbourhood.

The property shares I am talking about today are online portal Rightmove (LSE: RMV) and UK housebuilder Redrow (LSE: RDW). Both have grabbed my attention recently, not only because of the extension of the stamp duty holiday until the end of June (this was previously going to end on March 31st, before Chancellor of the Exchequer Rishi Sunak extended the deadline in his Spring Budget) but also because the recent prediction by upmarket estate agent Savills that UK house prices are set to rise by 4% this year, buoyed by a ‘return to normal’ and Covid-19 vaccinations hopes.

So, let’s look at the nitty gritty: why should I add these property shares to my portfolio right now? Well, over the past year Rightmove’s shares have risen by 21%, which is not bad. The company also believes the UK property market is very strong, in fact the strongest it has seen for a decade.

The general health of the UK housing market aside, despite reporting disappointing full-year number in February – pre-tax profits fell to £134.8m from £213.6m the year before – Rightmove said it was resuming dividend payments, recommending a final dividend of 4.5p a share for 2020, and its share buyback programme. Site traffic grew 31%, with time on the site over the year at 15.9bn minutes, up from 12.1bn minutes in 2019 and site visits of 2.1bn, up from 1.6bn.

But what are the turn-offs with the stock? Well, the UK property bubble might well be a ‘false boom’ created by the stamp duty holiday. Rightmove had to offer discounts to customers during the coronavirus pandemic, and its full-year revenue took a hit because of it.

Meanwhile, broker Liberum rates the stock at “hold”, and said the firm’s results were broadly in line with its expectations.

On to my other contender, one of the UK’s largest housebuilders Redrow. Its shares have risen 74% over the past year, no doubt helped by the stamp duty holiday extension, like other property shares. Its first-half pre-tax profits rose to £174m and the firm reinstated its dividend. Redrow attributed the rise in the first half to pent-up demand from the first national lockdown and the ‘Help to Buy’ scheme which drove sales.

Ben Nuttall, analyst at research firm Third Bridge, said Redrow had benefitted as the “stamp duty cliff edge many predicted simply hasn’t materialised”.

“Indeed, house prices remain relatively stable, although some price deceleration now seems likely as we look further into 2021,” he added.

“April’s changes to the government’s ‘Help to Buy’ scheme may be Redrow’s next challenge. The new scheme will only provide equity loans at a lower house price and this could trigger increased competition in Redrow’s core focus, families aspiring to a larger home market.”

Overall, I am encouraged to hold these two property shares due to the reinstatement of their dividends alone, but whilst keeping one eye on the direction of the UK housing market.

The post Why I’d buy these 2 property shares to ride the UK housing boom appeared first on The Motley Fool UK.

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Sabuhi Gard 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.

Motley Fool UK 2021