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Indirect Property Investment - A Greater Risk But a Far Greater Reward

In the October 2014 issue of Property Investor News we looked at investing in the shares of UK house builders as a method of achieving far higher returns than directly investing in actual property, without ever having to pick up a phone and call a plumber. In the article I asked 'if you could go back to early-2009 (with hindsight) would you invest in London property?' Most of us obviously wish that we could. However, the article highlighted that in fact a better investment in the 5.5 years since London property bottomed in Q1 2009 would have been to invest in shares of the four largest UK house builders instead.

The article clearly stated that, despite the average share price for this group increasing by 267% since then, compared to a 66% rise in London property prices during the same period, three out of the four largest house builders that are listed on the London Stock Exchange (LSE) still had share prices that were well below their 2006/07 peaks. It also argued that these share prices were likely to continue rising for the foreseeable future, especially Barratt Developments, which had just reported a doubling of its pre-tax profits and was still down 69% from its peak share price, and Taylor Wimpey, which was still down 78% from its peak share price and had just been tipped by The Share Centre as a 'buy'. (At the time of writing Taylor Wimpey and Berkley Homes were still listed as 'buy' and Persimmon and Barratt were listed as 'hold').

So, how have those shares performed since then? So just for once in Property Investor News, it's time to gloat! In just over six months (from 30th September 2014 to 15th April 2015) the average share price increase for all four shares was 39.4% (see table). From now onwards in what will be a quarterly review we will be adding the 5th largest listed UK house builder to the 'fictional fund', which is Bellway Plc.

This 39.4% average rise is equivalent to an annual increase of more than 70%, excluding any dividend payments the investor would have received. The average price rise for the FTSE 100 index during the same period was 7.3%. While this is a respectable increase over just six months, it shows how spectacularly well the UK house builders have performed during the recent winter period.

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