So the FTSE 100 rally of late March has failed to transfer into April. Potential investors find themselves in a bit of a quandary. Market confidence remains exceptionally brittle as the coronavirus crisis (and the economic impact thereof) casts a pall over global share indices. Fresh sell-offs could be just around the corner.
Could conflicted Footsie investors be better served by investing their cash in buy-to-let instead? They say bricks and mortar is one of the safest ways to protect your wealth in uncertain times like these. So getting involved in the residential property rentals market is a good idea, surely?
Careful now
I wouldn’t be so sure. As a report just released from Howsy shows, landlords are also suffering from lost trade because of the Covid-19 outbreak.
According to the online property management platform, tenant demand in the UK has fallen an average of 5% in the 20 cities it tracks. Bucking the trend is Belfast, where demand has actually risen 16% because of chronic homes shortages. And in Newcastle and Portsmouth, demand has remained flat on a year-on-year basis.
|
Top 20 Cities |
April 2019 | April 2020 | Change |
| Belfast | 21% | 37% | +16% |
| Portsmouth | 32% | 32% | 0% |
| Newcastle | 14% | 14% | 0% |
| Newport | 39% | 37% | -2% |
| London | 21% | 18% | -3% |
| Aberdeen | 8% | 4% | -4% |
| Nottingham | 36% | 32% | -4% |
| Bournemouth | 30% | 26% | -4% |
| Liverpool | 18% | 14% | -4% |
| Bristol | 50% | 46% | -4% |
| Leeds | 16% | 11% | -4% |
| Southampton | 24% | 19% | -5% |
| Leicester | 25% | 19% | -6% |
| Cardiff | 21% | 15% | -7% |
| Cambridge | 34% | 26% | -7% |
| Swansea | 16% | 9% | -7% |
| Glasgow | 25% | 17% | -8% |
| Edinburgh | 14% | 6% | -8% |
| Birmingham | 23% | 15% | -8% |
| Manchester | 26% | 18% | -9% |
| Sheffield | 22% | 13% | -9% |
| Plymouth | 34% | 23% | -11% |
| Oxford | 29% | 18% | -11% |
Costs are climbing too
It’s not just falling tenant demand that buy-to-let investors need to stomach today. Costs have spiralled in recent years through a mix of changes to tax relief, rising regulatory demands, and increasing maintenance bills. The introduction of the Tenant Fees Act last year has also transferred some weighty extra costs onto the shoulders of the landlord from the tenant. These are problems FTSE 100 investors don’t have to endure.
The outbreak of the pandemic, allied with expectations of a prolonged and painful economic downturn, has led many to predict a steady decline in property prices too. Property investment platform Sourced Capital suggests it could take until the mid-2020s for home values to recover.
Go FTSE 100 shopping instead
Why take the chance with buy-to-let then, a segment long-packed with increasing costs and now doubts over asset prices and tenant demand? You’d be much better off using your money to buy up some choice FTSE 100 stocks in a tax-efficient ISA.
There’s no shortage of brilliant blue-chips trading much too cheaply today. Take National Grid and SSE, for example. The essential service these utility plays provide means they’ve terrific earnings visibility, irrespective of whether a recession is coming down the tracks. Despite their defensive qualities though, they change hands at dirt-cheap prices. They both trade in and around just 14 times earnings. What’s more, the Footsie giants carry mammoth dividends yields of between 5.5% and 6.5% for 2020.
Admiral Group is another great income stock for nervous investors. Insurance is another resilient sector when the economy goes sideways. And this motor insurance specialist also sports dividend yields north of 5%.
It’s of course possible that UK share markets will shake lower again. But, for long-term FTSE 100 investors, there’s a galaxy of opportunities to grab some brilliant dividend shares at rock-bottom prices.