Australian Investors still prefer property over other assets such as shares.
Property investment may be in the low ebb right now, and may spell a good time for new investors to enter the market that mortgage brokers need to take avantage of.
In May 2004, the Reserve Bank said that 10.3 per cent of Australian households had an investment property. Some believe that is now around 12 percent [one in eight households.]
So why do people buy property as opposed to shares or other investment prospects?
The simple answer is leverage. By using mortgage finance with tax incentives investors can leverage a bigger investment and manage to hold that for longer. And its time that makes any investment work. Mortgage brokers should be more active in this area.
As an example, $400,000 is a common price to pay for property. If it appreciates at 5%pa that $20,000 a year, compounding.
If people bought shares then a $30,000 investment would seem large, and with a 5% capital growth it would only deliver $1,500 yield.
Also a lot happens to a share price, and this volatility can make people nervous and leave the market at the wrong time. Property on the other hand is largely a sleeper; noone knows what its worth till its sold, and growth happens gradually, and then in spurts in boom years.
When this happens the investor can make a lot of money in a short time if you are holding a few properties.
Mortgage brokers need to realise that property investors can become repeat customers as they accumulate their portfolios and as they tend to hold one to the property for a long time, upfront commissions are secure and trail commissions continue longer.
Prime candidates for purchasing investment properties these days tend to fall into two groups. Not surprisingly, the first is the baby boomers, who have considerable equity in their homes, tend to have their finances sorted and have five to 15 working years left. Many are conscious they need to do something outside of superannuation to boost their retirement income.
An emerging group are single females aged between 20 and 30. Many female "generation Ys" are getting the saving habit and getting into the market early.
A recent Citibank survey showed that 21 per cent of people who have a mortgage see it as something that will supplement their retirement income.
This presents another opportunity for mortgage brokers to satisfy this market with reverse mortgages and other similar products.
