Fancy grabbing a slice of one of the FTSE 100’s big-dividend-paying housebuilders? It would seem logical to consider the performance of the broader housing market before deciding to buy shares in these businesses. However, this sort of data can be a red herring, as recent research from Stone Real Estate shows.
According to the builder, prices of new-build properties have risen 46.9% in the decade to 2019, a 5.4% premium to the rate of 41.5%, which existing homes have grown by. And what’s more, despite the political and economic turbulence created by Brexit, prices of brand-new properties also continue to grow by a healthy rate, up 9.9% since the referendum of June 2016. Compare this with the 6% price gains for existing stock.
What a difference
Commenting on the numbers, Michael Stone, chief executive of Stone Real Estate, says: “Despite the bumpy ride of Brexit uncertainty over the last few years, new-build property values have increased in every region of the UK, while existing stock has failed to keep pace, or in some cases, even seen a decline.”
Indeed, prices of new-builds in London have grown 1.6% since the European Union referendum three-and-a-half years ago, while the value of existing homes has dropped 2.1%. The firm says the Lancashire towns of Blackburn and Darwen have seen the biggest divergence in price growth in the period across the whole of the country, of 6.4% (17.8% versus 11.4%).
The data prompted Stone to add that “while new build homes often come under fire due to the price premium involved, it’s abundantly clear that they have proven to be the best bricks and mortar investment option over the past 10 years when it comes to holding value.”
Buy-to-let? No thanks
The news might be good for the housebuilders and for owners of newly-constructed properties. But is it necessarily reason enough to encourage buy-to-let investors to grab a slice of the new-build action? Not in my opinion.
As recent research shows, landlords’ profits are sinking through the floor amid a mix of rising tax bills and increased running and admin costs, offsetting the benefit of rising rents across much of the country. And the attack on investors’ pockets is likely to intensify as the government scrambles to free up homes for first-time buyers.
My belief, then, is to play these booming new-build prices by buying one of the Footsie’s big dividend payers. These are investments which, owing to the size of the country’s colossal homes shortage, are in great shape to keep delivering terrific long-term earnings growth. And this gives them the confidence to keep paying above-average dividends.
I own shares in Barratt Developments and Taylor Wimpey, builders which offer enormous yields of 7.2% and 10.7%, respectively. Income chasers, though, might want to give Persimmon and The Berkeley Group close attention too — yields here sit at 9.9% and 4.1%.