The latest Halifax house price index for May was released today. It showed a rise of 9.5% over the past year. This pushed the average house price to a new record high of over £261k. Given the boom in the property market in that year, I’d like to get exposure to it. Obviously I could buy a house, but as a stock investor, I can actually get exposure via the top UK property stocks.
Ways I can get involved
Some think that all the top UK property stocks fall into the category of being Real Estate Investment Trusts (or REITs). This isn’t strictly true. I can get exposure to the property market in several different ways.
First, I could look to buy homebuilders. For example, Barratt Developments is one of the largest UK homebuilders at the moment. Rising property prices help support the share price as finished projects are worth more. Given that the company is constantly taking on new housing projects via its forward order book, the tick higher in prices will naturally feed in over time.
In fact, I think this rise over the past year is one reason why the Barratt share price is up 42% over the past year.
Second, I could look to invest in a top property stock like Rightmove. The company doesn’t own any property, but is the marketplace where buyers and sellers meet for real estate. In this way, higher prices should signal higher activity. More activity helps Rightmove make more money from the traffic on the website, along with more listings.
The correlation to rising property prices might not be as strong here as with other examples, but this could be ok if I feel I’ve got some property exposure elsewhere.
Finally, I come back to REITs. These are companies that specifically own real estate, usually commercial plots. An example here is British Land. The rent received is paid out to shareholders. Some 90% of income needs to be paid out to get the REIT classification.
Higher prices should boost the value of the overall portfolio being managed. However, as commercial property prices don’t always track residential prices, this might not be the best way for me to invest. I’d need to check how much of the portfolio is invested in residential housing first.
Should I buy the top UK property stocks?
In my opinion, house prices can continue to rally. So the question is how much exposure do I want to get?
Personally, if I’m very bullish then I should buy homebuilder stocks. I think higher property prices will continue to support higher project revenue and a higher share price.
I could invest in a REIT, but often most of the portfolio is focused generating income from commercial property, which has been challenged of late. As a result, I wouldn’t invest in it to get exposure to rising residential housing prices.
As for Rightmove, I’m positive on the stock anyway, so would be happy to buy it for reasons other than just rising prices.
