While it's obvious that property investors invest in real estate to create wealth for their own families, the general public is largely unaware that investors actually play a critical role in helping average Australian families create and keep their wealth, according to a leading property expert.
Bill Zheng, CEO of Investors Direct, said that property investors contribute 23% of the 7.5 million residential properties to the housing market, where the public housing system only provides around 6%.
"Without property investors, over 20% of the Australians who rent would have nowhere to live," he said. "When you consider that Australian property is valued at about three times of the stock market, and represents about 70% of the average Australian's wealth, you can start to see just how much of a contribution property investors have made.
"Imagine if property investors decided to leave the property market. Most home values would start to drop; this would deter potential property buyers from buying properties because few people want to buy a depreciating asset. The fewer number of people who want to buy properties, the further property values would drop, and this could become a vicious cycle. The active participation of property investors in the housing market has been the key to the steady growth of most Australians' family homes and therefore their wealth.
"Australian property investors have also contributed to the health of the overall Australian economy by creating jobs in property related industries, such as construction, building material supplies, finance, legal, accounting, etc. Historically, around one-third of the residential mortgages in Australia are taken out by property investors for investment purposes. In the 12 months to March 2008 it was 32%. This is another illustration of the significance of investor-driven activities to the health of the overall economy," Zheng continued.
"Only 6% of the Australian population are property investors, and this small group of people tends to be less understood by the general public in comparison to homebuyers. Property investors are, in fact, a very unique group of Australians who have decided to proactively take control of their own financial future, instead of relying on government assistance when they retire. By taking greater responsibility for their finances, investors set a great example for their friends and family.
"Being a property investor is challenging. It takes strength of character. As Australian residential properties don't have very high yields in general, property investors usually need to be disciplined with their cash flow. Even with negative gearing benefits, it isn't unusual to see property investors having to limit their lifestyles for a period of time to carry negative cash flow from their properties," he continued.
"Another major difficulty property investors need to confront and overcome is the need to take on more debt. Taking on debt is one of the most effective ways to create wealth through properties. It takes a person who is financially astute, who has courage and determination to do so.
"Property investors are also disciplined and focused. Compared to homeowners, property investors also need to spend a lot more time educating themselves in taxation, asset protection, finance, property selection, risk management and people skills, etc. Simply falling in love with a property isn't quite enough to make you an effective investor.
"Many property investors don't give themselves enough credit for what they do - the general public certainly doesn't.
"People usually get better results when they feel good about what they do. Property investing is no different. The Investors Direct Property Investor of The Year Award provides a way to celebrate our achievements as property investors, and, more importantly, to acknowledge the contribution investors make to the community at large," Zheng concluded.
For the full details on how to enter and become Australia's Investor of the Year 2008, check out the latest issue of Your Investment Property magazine, on sale now.