Forget buy-to-let! These shares could be the best way to profit from property

Purple Bricks estate agent sold sign

New stamp duty taxes may have contributed to a slump in buy-to-let mortgage lending over the past quarter, but according to the BoE's latest statistics a full 15% of outstanding mortgage value today is still for buy-to-let properties. But, for those of us who don't want the hassle of owning a second or third property (and tying up a large amount of cash that can't be accessed quickly), can the stock market be a great way to benefit from our obsession with home ownership?

One market favourite recently has been online property listing firm Rightmove (LSE: RMV). The reasons for its popularity are clear: 77% market share, operating margins of 74.7% over the past six months, steadily increasing dividends and share buybacks, and a major shift in the way people shop for property.

The downside for those on the outside looking in is that investors enamoured with these qualities have piled into the shares at a rapid clip and they trade at a lofty 30 times forward earnings.

To live up to this valuation, Rightmove needs to continue growing like a startup rather than the £3.8bn juggernaut it has become. While the past six months saw growth in the number of agency customers only rose 1%, it was able to squeeze enough extra sales out of existing customers to increase revenue per agency by a full 12%.

The good news is that continued double-digit growth in website visits means estate agents will pay a premium to list on Rightmove. What will be interesting to watch is whether it can expand its domestic dominance abroad. Non-UK estate agents already account for 13% of total customer numbers and if Rightmove can expand this number fast, it may be able to live up to current valuations.

At the end of the day, Rightmove's fortunes remain largely tied to the health of the domestic housing market, but it's partly insulated thanks to charging agencies a subscription fee rather than per listing. And with the average monthly fee only £789 it would take a sustained and dramatic downturn for agents to begin cutting back on its services.

Purple patch

For the more risk-hungry investor an interesting option is Neil Woodford-backed hybrid online estate agent Purplebricks (LSE: PURP). That business description is a mouthful, but it means Purplebricks will list your home on its site for a fixed fee, rather than the percentage of sale price traditional estate agents charge, and provide the assistance of a local, self-employed estate agent.

This business model gives it a differentiator in a profusion of online estate agents and provides customers with greater peace of mind for such an expensive and life-changing transaction.

The market for Purplebricks' services is massive as sellers increasingly balk at paying up to 2.5% of the sale price to estate agents who may do no more than list a property on Rightmove. This is evidenced by the 448% increase in year-on-year revenue for Purplebricks.

Now, the company is only two years old so this growth should be taken with a heap of salt. Furthermore, it was lossmaking to the tune of £10.5m last year due to high marketing spend. But with a multibillion pound market to disrupt and the company expecting its first profits next year, Purplebricks may be worth following for growth investors.

Not all growth shares have to be such new businesses, though. In fact, the Motley Fool's top analysts have written their latest free report on one company that has increased sales every single year since going public in 1997.

And despite the shares already increasing 250% in value over the past five years, the Fool's analysts believe the company has the potential to once again triple in size in the coming decade.

To discover this stellar growth share for yourself, simply follow this link for your free, no obligation copy of the report.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Rightmove. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

10 property hotspots
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10 property hotspots

In Scotland, Edinburgh is seen as a city with huge growth potential. In 2014, prices in Edinburgh were up 10% in a post referendum boom that shows little sign of slowing down.

Local agents are not expecting quite such stellar growth for the next 12 months, but they think price rises will be well above the average predicted for the whole country.

Rightmove named this as the area where it expects house prices to grow the most over the next five years. It says that over this period there will be a huge number of people moving out of London in order to afford to get onto the property ladder. They want a reasonable commute combined with plenty of attractions in the local area, and Southampton offers all this. With relatively affordable housing stock, it's a prime candidate for growth.

Luton was Rightmove's candidate for the second biggest house price rises over the next five years. It emphasised that this isn't a mater of opinion, it is the result of crunching the data.

Luton is another major beneficiary of the move out of London, and while it is arguably not as attractive a place to live as Southampton, it's only 23 minutes into central London - which rivals some of inner London's commuter times. With average prices of £179,368, it's clearly a far more affordable option, and the area has already started to show signs of a boom.

This was the third area suggested by Rightmove. As with Southampton, it is well positioned for London commuters, and also has huge local attractions.

A survey last year asked young professionals to name the place they would most like to live, and Brighton and Hove were the only areas that appeared on the list outside London.

One of the reasons it's not higher up the list is that houses are already on the pricey side, with an average cost of £338,956 - up 13% in the past year alone.

There may be few people who grow up with the dream of living in Swindon, but the electrification of the rail line to London will bring travel times down across the West Country, so Swindon becomes part of the outer commuter area.

Given that the average property costs £168, 968, it's easy to see why Swindon will be a popular option for commuters on a tight budget.

Bath is also going to benefit from electrification of the line, because the commute to London will fall to a manageable 70 minutes. The beauty of the city - along with a vibrant social and cultural life - makes it a clear choice for more long-distance commuters.

Of course, with an average asking price of £374,617, it's not a tremendously cheap place to buy, but the geography of the city restricts development, so these prices are expected to rise still further.

Property Frontiers says that the booming house prices in Oxford are set to get even higher. At the moment, travel to London takes 60 minutes, but this will reduce even further in 2016 when the line is electrified. Prices in the most desirable parts of the centre aren't much cheaper than London.

However, further out there are pockets of affordability, and when the Water Eaton station opens in 2015 it will open up areas to the north of the city too.

Manchester has seen enormous property price rises over the last couple of years, and Property Frontiers expects this to continue into 2015.

Other commentators are expecting the growth to slow over the next few years, especially given the gains made since 2012. However, demand for properties remains buoyant, and with the growth of the local economy, price rises seem inevitable.

Rising prices in London have pushed buyers further and further out of the centre, so estate agents are now claiming zone three as 'the new zone 2'.

Savills believes that the biggest gains over the next five years will be the less glamorous districts - putting the South and East in the frame. Gritty areas that could benefit include Ladywell, Streatham and Catford in the south, and Leytonstone, Forest Gate and Walthamstow in the east.

Cambridge could also perform well. It has already had house prices lifted by the growth of tech companies to the north of the city, and the arrival of pharmaceutical headquarters will help push prices up further.

In 2016 a new rail service from the city to the science park will keep prices rising, and beyond the opportunities presented by the local economy, Cambridge is also part of the 'outer commute' area of London, which Savills expects to shoot up in value over the next five years.


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