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‘Alarm bells’ ringing around leveraged property and SMSFs
There are “significant holes” in the Future of Financial Advice (FOFA) reforms, according to Tria Investment Partners, with the legislation failing to address issues related to leveraging property in SMSFs.
The availability of gearing in super brings property within reach of the average SMSF, and FOFA has created a “reinforcing remuneration incentive” to promote this strategy, said managing partner of Tria Andrew Baker.
“No wonder the distribution of real estate to SMSFs is becoming big business,” Mr Baker said. “FOFA leaves some holes big enough to drive a geared apartment through.”
While concerns about SMSFs and geared property have not previously been seen as an issue due to statistics that indicate modest exposure, more recent data from Multiport show there has been rapid growth in the gearing of real estate within SMSFs.
Australian Taxation Office (ATO) figures also show SMSFs are gradually increasing their exposure to commercial and residential real estate.
“Recent worries expressed by [Bank of Queensland] chief executive officer Stuart Grimshaw about the rapid growth of leveraged purchases of real estate by SMSFs... deserve some attention,” said Mr Baker.
“When a bank CEO – who after all is in the business of selling loans – rings the alarm bells about leveraged real estate and SMSFs, it flags potential problems which even incumbents need to keep in mind.”
David Cantley, general manager at Future Estate, raised similar concerns, saying SMSFs were not originally set up for the purpose of gearing.
“Traditionally, super is for retirement... You’re not meant to have lending against it, [because that] opens up a risk,” Mr Cantley told SMSF Adviser.
“There are advantages for gearing within super, but there are also disadvantages for it,” he said. “A lot of people have lost their super by not having enough hands-on knowledge about this.”
Feels like there is a bit of a campaign going to undermine the SMSF "space'.
sure some trustees do their dough.... um, but what about the fund manager/s who were unable to get me a "real" return with some 20+ years to deliver? HUH?0- If the bank is concerned with a client, SMSF or otherwise. then why would they proceed with the loan? Would think they are negligent in that instance! Load of hot air! We are specialist SMSF advisers at Sondergaard Accountants in Perth and also have a strong property focus. Sure any property investor could make a mistake, especially if the property falls significantly in value, EG Holiday and Minesite locations but the biggest risk for any property investor is no tenant or skyrocketing interest rates and these risks are there whether it is an SMSF investor or any other investor. A fortune has also been lost through planners, stockbrokers, listed shares etc etc so a pretty narrow and silly generalisation0
- Um, that us why SMSF lending is non recourse, protecting the other asserts of the SMSF including cash. Is the head of BOQ really accross how this works.0
- Traditionally, super is for retirement... Youre not meant to have lending against it, [because that] opens up a risk, Mr Cantley told SMSF Adviser
Yep - give your super money to some fund manager to belt out negative returns - great idea0 - lets just give it back to financial planners so they can make a commissioner rather than operating a SMSF0
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