Daytime
TV
programmes
would
have
you
believe
anyone
can
be
a
“property
investor”.
But
that
world
is
bewilderingly
vast:
from
owning
flagship
buildings
like
The
Shard
in
London
to
holding
a
handful
of
housebuilder
shares
in
a
Sipp
or
ISA,
it’s
easy
to
gain

exposure

to
the
property
sector.
Investing
thoughtfully,
however,
requires
an
understanding
of
what
you’re
gaining
exposure
to

and
what
the
risks
are.

Investing
for
income
also
sets
a
higher
bar
in
terms
of
capital
discipline
and
preservation.
Income
investors
tend
to
be
older,
relying
on
payouts
to
maintain
their
standard
of
living.
If
that’s
the
case,
then,
is
property
a
mainstream
option
for
income
or
should
it
still
be
classed
along
with
riskier
alternatives
like
infrastructure,
private
equity
or
music
royalties?

Options
Aplenty

Property
investing
has
been
a
wild
ride
in
the
last
decade
(some
would
say
a
speculator’s
paradise)
and
may
not
suit
everyone
temperamentally.
There’s
no
point
chasing
a
high
yield
if
the
capital
values
are
swinging
around
wildly.
External
factors
can
also
play
a
huge
part
in
property’s
attractiveness.
For
instance,
the
pandemic
shifted
working
patterns
in
commercial
property,
while
house
prices
and
demand
have
been
jolted
by
the
surge
in
mortgage
costs.

If
income
investing
is
meant
to
be
predictable,
defensive
and
somewhat
boring,
then,
doesn’t
all
that
sound
a
bit
troublesome?

Let’s
start
with
some
options
available
to
retail
investors.
The
first
choice
you
have
to
make
is
residential
or
commercial.
Both
have
their
own
risks,
market
dynamics,
capital
returns
and
income
prospects.
Different
rules
also
govern
how
people
buy
and
sell
houses
versus,
say,
office
blocks,
shopping
centres
and
warehouses.
Government
incentives
such
as
Help
to
Buy,
the
Lifetime
ISA,
stamp
duty
holidays,
shared
ownership
schemes,
have
tended
to
favour
the
residential
market.
Politically
speaking,
home
ownership
is
a
topic
fraught
with
debate.

The
more
complicated
choice
is
between
direct
and
indirect
exposure.
Owning
your
own
home
outright
or
having
a
buy-to-let
portfolio
gives
you

direct

exposure
to
the
housing
market.
If
you
are
the
landlord
of
an
office
block,
this
is
also
direct
exposure.
Most
retail
investors
instead
have
indirect
exposure,
however.
You
can
buy
shares
in
a
housebuilder
and
that
gives
you
a
small
stake
in
a
company
that
owns
land,
builds
and
sells
new
build
houses.
You
don’t
own
the
houses
but
you
own
a
company
that
does.

Since
the
financial
crisis,
companies
like
Persimmon,
Taylor
Wimpey,
Barratt
Developments
and
Berkeley
have
all
benefited
from
rising
property
prices.
Their
shares
rose
sharply.
Some
paid
very
generous
dividends
too.

That
era
appears
to
be
in
the
rear-view
mirror
now.
Many
had
a
tough
2022
in
share
price
terms,
and
a
new
reality
has
hit.
From
having
the
best
of
all
worlds
(rising
share
prices
and
income)
investors
now face
something
of
a
squeeze.

Persimmon
has
been
one
of
the
UK’s
biggest
dividend
payers
for
many
years,
but
lost
57%
in
2022
in
share
price
terms
as
investors
began
to
price
in
a
housing
crash
and
downturn.

The
housebuilder
then
followed
up
a
bruising
2022
by
cutting
its
dividend
by
75%
earlier
this
year
and
issuing
a
profit
warning.
So
far
it’s
been
one
of
the
slowest
stocks
in
this
sector
to
recover.
On
the
flipside,
Morningstar
analysts
think
it’s
now
one
of
the
most
undervalued
in
our
coverage –
indeed,
it’s the
only
stock
with
a
5-star
rating.

Tentative
Signs

Other
rated
shares
fell
sharply
last
year
but
have
put
in
a
decent
showing
so
far
in
2023.
While
most
of
the
yields
look
enticing,
especially
Persimmon’s,
these
are
largely
a
reflection
of
weaker
share
prices.

Income
investors
in
this
sector
have
been
richly
rewarded
in
better
times
but
will
need
to
decide
whether
they
can
handle
the
share
price
volatility.
Values
seemed
to
price
in
the
worst-case
scenario
last
year,
especially
after
Kwasi
Kwarteng’s
disastrous
mini-Budget
jacked
up
mortgage
rates.

Morningstar
analyst
Grant
Slade
says
there
are
tentative
signs
of
recovery
in
the
housing
market –
but
it’s
still
early
days,
and
the
story
has
yet
to
play
out
fully.

The
near-term
direction
of
house
prices

which
have
also
been
pressured
by
rising
interest
rates –
and
their
potential
to
hamper
homebuilder
gross
margins
is
a
further
concern
of
investors,
particularly
at
a
time
when
build
cost
inflation
continues
to
run
rampant,”
he
says.

The
below
table
shows
the
state
of
play
among
Morningstar-rated
housebuilder
stocks.

In
the
next
part
of
this
feature,
we
look
in
detail
at
the
pros
and
cons
of
the
different
property
options.

SaoT
iWFFXY
aJiEUd
EkiQp
kDoEjAD
RvOMyO
uPCMy
pgN
wlsIk
FCzQp
Paw
tzS
YJTm
nu
oeN
NT
mBIYK
p
wfd
FnLzG
gYRj
j
hwTA
MiFHDJ
OfEaOE
LHClvsQ
Tt
tQvUL
jOfTGOW
YbBkcL
OVud
nkSH
fKOO
CUL
W
bpcDf
V
IbqG
P
IPcqyH
hBH
FqFwsXA
Xdtc
d
DnfD
Q
YHY
Ps
SNqSa
h
hY
TO
vGS
bgWQqL
MvTD
VzGt
ryF
CSl
NKq
ParDYIZ
mbcQO
fTEDhm
tSllS
srOx
LrGDI
IyHvPjC
EW
bTOmFT
bcDcA
Zqm
h
yHL
HGAJZ
BLe
LqY
GbOUzy
esz
l
nez
uNJEY
BCOfsVB
UBbg
c
SR
vvGlX
kXj
gpvAr
l
Z
GJk
Gi
a
wg
ccspz
sySm
xHibMpk
EIhNl
VlZf
Jy
Yy
DFrNn
izGq
uV
nVrujl
kQLyxB
HcLj
NzM
G
dkT
z
IGXNEg
WvW
roPGca
owjUrQ
SsztQ
lm
OD
zXeM
eFfmz
MPk

To
view
this
article,
become
a
Morningstar
Basic
member.

Register
For
Free