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Don't get dragged under when the housing market turns

Property-related companies look to offer growth at a reasonable price but there are dangers.
Don't get dragged under when the housing market turns
  • UK housing market could be heading for a slowdown in 2022
  • Property companies' valuations don't appear so attractive on closer inspection of the businesses

Investing in a business that is keyed into the fortunes of the UK’s housing market all but assures a wild ride. At present a surging market in housing and allied industries makes for very positive results, but both a reversion to mean and specific headwinds threaten to clip the housing and allied markets’ wings in 2022. When driven by such a cyclical market, investors should look for ways in which diversification and re-modelling can deliver sustainable growth: only one of the three stocks we examine here has the scope to achieve this.

The reason we chose these property companies is because they all scored well on our Alpha growth at a reasonable price (Garp) screen recently. Given the extreme cyclicality of businesses that depend on the housing market, Garp is often a flawed way to assess them. A thorough examination of business models, fundamental drivers and growth strategies is necessary before deciding whether growth is sustainable or priced cheaply by the market.  

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