Although this year Ive been strongly advocating shares as a long-term investment asglobal equities start to rise, its hard to argue against rising houseprices. Even if you buy shares, you should have a substantial amount of your money in Britains housing boom.
Property prices have beenclimbing for agesin the UK. And many have used their savings and inheritance cash to buy into buy-to-let. Yet taxes have been rising on buy-to-let, as the government has tried to raise as much money as it can from thisgrowing sector.
Investors rushedto beat the April deadline
On1 April, stamp duty on buy-to-let washiked 3%. This led to a last-minute rush from investors to buyproperties. Rightmove reported that house sellers asking prices jumped to a record high of 308,151. Miles Shipside, director of Rightmove, said that this sudden rush of purchases had resulted in a famine of suitable property and higher prices.
Its basically a case of supply and demand, as the lack of houses and flats on the market has meant that sellers have been able topush uptheir prices.
This is of course good news for the housebuilders, notably Barratt Developments (LSE: BDEV) and Persimmon (LSE: PSN). Both these companies have made the most of the house price recovery after the slump caused by the Credit Crunch, building up their stock of land during the recession and then selling more property during the recovery.
Resurgent property prices and an increasing number of transactions have led to a rapidincrease in the earnings of these firms, and the share prices have consequently been on the up.
House builders still look cheap
Yet Barratt Developments 2016 P/E ratio is still only 9.92, and theres an appealing 5.69% dividend yield. The share price is off its highs, and this might bethe perfecttime to invest.
Persimmon has also been doing well, and despite the rising share price its still on a 2016 P/E ratio of 10.48, with an income of 5.61%.
Thus these companies exhibit the ideal combination of growing profitability and an attractive dividend.
The main cloud on the horizon is the EU referendum on 23 June. The latest opinion polls show that this is balanced ona knife-edge. Uncertainty may mean that some people delay their purchases, and over the next few months, this is likely to slow the housing markets momentum.
Yet even if Britain leaves Europe, people will still want to buy houses, and a strengthening UK economy, increasing population and a bubbling jobs market mean that over the next few years, I expect property prices to continue to climb. This trend has a long way to run.
Thats why I rate both Barratt Developments and Persimmon as buys.
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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
