To the uninitiated, Britain’s buy-to-let market may now look like a cash cow that’s too good to pass up. The country’s housing crisis continues to command plenty of column inches in the press. I would argue, however, that the pressures facing first-time buyers are minuscule compared with those facing modern renters.
Indeed, government attempts to free up homes for first-time homebuyers – bigger tax bills, more regulatory hoops, and higher operating costs for landlords – is squeezing the rental class more than ever. The stock of available rental space is falling as a growing number of landlords leave the sector. As a result, rents are heading through the roof.
2020 vision
Data released this week by HomeLet revealed the extent of the crisis. According to the rental services provider, the average rent in the UK rose 3.5% in December, to £953. Compare this with the 2.2% increase in residential property prices shown in the latest figures from the Office for National Statistics.
The latest monthly Rental Index showed that rents rose in all 12 regions in the UK. And HomeLet chief executive Martin Totty predicted that rents could keep rising, noting that “so long as the balance between supply and demand remains, it would be reasonable to predict a further period of solid rental price growth throughout 2020.”
Costs are booming
Rents may be rising, but if you dig a little deeper, buy-to-let isn’t as appealing as it may first appear. In large part, those increased rents reflect landlords’ attempts to pass higher costs on to their renters, as profits from the sector come crashing down. And the level of actual future returns may keep sliding as the government steps up its attacks on the sector.
In uncertain macroeconomic and political times like these, it may seems like a good idea to invest in bricks and mortar, that classic defensive play. But a rising cost base means that I’m not tempted to buy into buy-to-let. In fact, I’d rather go safe-haven shopping for gold stocks right now. And in Caledonia Mining Corporation (LSE: CMCL), it’s possible to get hold of an absolute beauty.
Value, growth, AND income!
Recent news from the Zimbabwe-focussed bullion producer has been quite brilliant. Earlier this week, Caledonia advised that its Blanket mine produced a record 16,876 ounces of gold in the fourth quarter, up 24% from the previous three months and 13% better than the corresponding quarter in 2018.
In fact, output at Blanket was so strong that 2019 production came in at 55,182 ounces, beating Caledonia’s previous guidance of 50,000 to 53,000 ounces. And there could be much more to come, with the AIM-listed firm predicting annual output of between 53,000 and 56,000 ounces in 2020.
No wonder City analysts, encouraged by the bright outlook for precious metal prices, are expecting Caledonia to report a 19% earnings jump this year. That figure leads to predictions of mighty dividend growth. With the mining giant sporting a rock-bottom forward price-to-earnings ratio of 7.2 times AND a bulky 4.1% corresponding dividend yield, I think it’s a much better investment choice than buy-to-let property. I reckon reckon this is a stock that’s in great shape to build on the 43% share price rise it reported in 2019.