Once upon a time, buy-to-let was a terrific investment, offering investors the winning combination of rental income and capital growth from rising house prices. It couldn’t last.
Crackdown
In 2016, Chancellor George Osborne unleashed a three-pronged tax attack, and the fairytale came to an end. Some people may still make money out of it, but it is a lot harder than it was. You still have all the bother of buying a property, paying stamp duty (plus that 3% surcharge), doing it up, sourcing tenants, taking deposits and following regulations, only to pay punitive levels of tax on whatever profit you can squeeze out.
I would rather buy stocks and shares, which can be traded in seconds rather than months, with all returns tax-free through the annual £20,000 Stocks and Shares ISA allowance.
Global property play
You could even invest in the property market by purchasing a stock like international estate and lettings agents Savills (LSE: SVS). Launched in 1855, it now has global clout with 600 offices across the Americas, Europe, Asia Pacific, Africa and the Middle East.
As my colleague Roland Head recently pointed out, it operates at the higher end of the market, which can be more robust, and diversifies your exposure to property markets far beyond the UK.
The Savills share price has enjoyed a storming year, growing 30% since January, helped by the wider stock market recovery. Despite this it still trades at just 12 times forward earnings.
Cheaper money
Savills may also benefit from falling interest rates, with markets now expecting US Federal Reserve to cut interest rates in July and possibly September as well. This is part of a global trend, with Australia, Chile, New Zealand and India all cutting this year, and the European Central Bank and Bank of England increasingly dovish.
While it’s worrying that the global economy cannot afford more expensive money, this should help prop up property prices, and underpin Savills’ revenues. Savills stock currently yields 1.8% a year too. Could be worth a look.
Viva Aviva!
I’m a long-standing admirer of FTSE 100 insurance giant Aviva (LSE: AV), which also has indirect exposure to the UK property market via its equity release lifetime mortgages arm. Its main focus is on selling life, pensions, health, general insurance and investment products to millions of customers across the UK, Ireland, France, Poland, Italy, Canada and Singapore.
Just 48% of its business is focused on the UK, which gives it some Brexit ballast. It should also give your portfolio a handy income injection, with a dividend yield of 7.7% covered 1.9 times by earnings and backed by cash flow.
Turnaround Tulloch
New boss Maurice Tulloch disappointed investors in March by tying future payouts to underlying growth rather than paying a fixed ratio, while no share buy-backs are expected this year. However, he is working hard to overhaul the group in order to simplify its structure and strip out underperforming areas, which should boost Aviva stock in the longer run.
Aviva’s share price has underwhelmed, but it is up 12% over the last three months and looks dirt cheap trading at around seven times earnings. I’d buy it over a buy-to-let property.