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RBA reopens debate on limiting SMSF borrowing
The RBA has reiterated to the government that it supports limiting the scope for leverage in superannuation funds since it may increase “vulnerabilities” in the financial system.
In a submission to the federal government’s Inquiry into Home Ownership, the RBA noted a significant change to the housing market in the past decade is that superannuation funds are now able to borrow to invest.
The inquiry will report on issues including demand and supply drivers in the housing market; the impact of current tax policy at all levels; and opportunities for reform.
The central bank has previously observed that leverage in superannuation funds may increase vulnerabilities in the financial system, and stated in its submission that it continues to support limiting its scope.
“Some SMSFs have taken advantage of [leveraging capabilities] by adding geared property into the fund portfolio, both residential and, in particular, commercial property,” the Reserve Bank stated.
“At the margin, this has increased the population of potential investors. Although the share of the housing stock owned by these funds is small, it has grown quickly."
The central bank first disclosed its fears about SMSF borrowing in late 2013, saying that gearing into SMSFs could potentially put household finances at risk.
“Property holdings by SMSFs have increased and this type of investment strategy is being heavily promoted. The sector therefore represents a vehicle for potentially speculative demand for property that did not exist in the past,” the RBA said at the time.
“There are some signs that households are taking on more risk in their investment decisions, and the potential for a further increase in property gearing in SMSFs is a development that will be monitored closely by authorities for its implications both for risks to financial stability and consumer protection.”
Put an 80% cap or the like on all geared residential investment inside super and assume that the majority of people have a lot more regard for how they invest their money than they are given credit for.
Don't assume you know better! Very few people who have worked to create a nest egg want to give it up easily.0- This is all well and good for the RBA to enter this debate as an independent body, however it would be more relevant to their argument if their submission included statistics that confirmed geared SMSF property investments impacts on the property market. Is there a 1% impact on the total value of the residential real estate market? 10%. I repeat, what are the statistics? If they have included statistics, why haven't you included them in your article?0
- While I do not totally oppose LRBAs, as a SMSF auditor I do shudder at some of the funds I see. I am yet to be convinced that a 2-member fund, both members in their 50s, with a single asset being a financed residential property is sound retirement planning. We have a 5% limit on in-house assets. Maybe we need a limit on the portion of assets that can be acquired by a LRBA.0
- It's about time the Reserve Bank was treated with a degree of sensible scrutiny instead of ridiculous respect. It has been debauching the currency since the 1960s. It is running a near zero interest policy which is expropriating savers, subsidizing profligate government borrowers, and driving land prices towards infinity, while making it cheap for foreigners to buy up Australian assets. And it has the public impudence to lecture us on financial prudence?0
- This is about limiting self managed superannuation funds borrowing to buy property.0
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