Regular readers at The Motley Fool will know that we’re not big fans of buy-to-let. It’s difficult to argue that buying up rental properties hasn’t proved an exceptional investment option in past decades because of stratospheric home price values and the subsequent boom in rental yields.
However, our bullish opinion of the sector has turned over in the past couple of years. Government has increasingly sought to punish landlords with higher costs and more regulation, efforts concocted to soothe the country’s homes crisis by reducing the number of properties being bought for buy-to-let purposes.
Labour pains And the risks to participants in the rental market has risen a notch or two this week as the unrelenting Brexit problem weakened the Tory government again and raised the prospect of an imminent early election. Bookmakers have slashed the odds on a 2019 ballot box battle further and Ladbrokes (LON:LCL) for one is offering 6/4 on such an eventuality.
Why does this present further cause for landlords to worry? Well, it raises the possibility of Labour grabbing the keys to Downing Street and imposing even more painful legislation for the sector. Just last week, the party announced it would introduce indefinite tenancies should it win an election and sits alongside other potentially-crushing policies like rent caps and tighter standards for rental properties.
A better bet I certainly wouldn’t get involved in buy-to-let in the current climate. Indeed, I’ve decided to use my extra capital to invest in the stock market instead, and I reckon you’d be better off following suit.
If you’re looking to get exposure to the property market, a better way to do so would be to buy shares in Unite Group (LSE: UTG).
The student accommodation provider saw pre-tax profit jump 7% in 2018 to £245.8m and there’s plenty of reasons to expect the bottom line to keep on swelling. Participation rates for the UK’s best universities remains strong, and Unite in particular is well placed to benefit from this — around nine-tenths of the company’s properties are located around the UK’s high- and mid-ranked universities. It’s also intending to focus all future expansion efforts on these popular institutions.
Unite is also benefitting from the country’s housing shortage, as the growing exodus of buy-to-let landlords amid a backcloth of increasing costs and regulatory loopholes boosts the company’s outlook still further.
Dividend darling An important addendum for income hunters is that Unite Group is a particularly great stock for those looking for great dividend growth. Last year, the business hiked the full-year payout to 29p per share. With earnings expected to keep ripping higher — brokers are forecasting earnings rises of 12% and 9% in 2019 and 2020, respectively — dividends of 32.2p and 35.1p are projected for these years.
Consequently, the accommodation play sports chubby yields of 3.6% and 3.9% for this year and next. For those seeking big returns in the years ahead I reckon investing in this property stock is a much better place to deploy your investment cash than the buy-to-let sector.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019