On Valentine’s Day, the Royal Institution of Chartered Surveyors (RICS) issued a press release saying that its recent survey revealed a slow start to the year in the UK residential property market. In January, the rate of sales and new enquiries fell further from an already “subdued backdrop” and contributors “sense little prospect of a turnaround.”
According to the institution, issues such as Brexit and property affordability are causing potential buyers and sellers to hesitate. New-buyer enquiries fell again in January, which is the sixth month in a row that the figure has fallen. The statistics for sales agreed also dropped further and Simon Rubinsohn, the chief economist of RICS, said in the report the pace of decline appears to be “gathering momentum compared to December.”
The property market is weak
It all strikes me as more evidence pointing to the possibility of falling residential property prices ahead. I’m sceptical that things will improve in the property market just because Brexit will be behind us and the UK will have finally left the European Union. To me, the biggest threat is that property is far less affordable compared to the average wage than it was, say, 20 years ago.
Considering the possibility of falling property prices and recent tax changes affecting buy-to-let landlords, I think taking on a mortgage now to buy a property to rent out could be a dangerous move. I know that people have done well from rising rents and property prices over the last couple of decades or so, but I reckon any new buy-to-let investment will face elevated downside risk from falling prices. I wouldn’t go into owning property as an investment now, instead, I’d rather invest in some of the FTSE 100 stocks that are paying decent and rising dividends.
Decent dividend yields to collect
The weakness in the stock market that we’ve seen since the end of last summer has left many firms at apparently modest valuations and paying decent dividends. Although I’d be cautious about dividend yields that are too high, say above 7%, because sometimes firms deserve a low valuation and, in such cases, the directors could end up cutting the dividend. So I’d avoid companies with operational problems and also large cyclical enterprises that could see their earnings plummet in the next general economic slowdown.
But I am attracted to large firms with more defensive operations. You can find those kinds of enterprises in sectors such as pharmaceuticals, fast-moving consumer goods and utilities. Look at GlaxoSmithKline’s dividend yield near 5%, for example, and National Grid’s approaching 6%. Then there’s Unilever at close to 3.5%, Severn Trent around 5%, Reckitt Benckiser Group near 3%, and Astra Zeneca at 3.5%. They are all decent enterprises listed in the FTSE 100 and well worth your further research time.
I’d rather invest in some, or all, of those companies than commit to a buy-to-let investment right now.