“You want the property itself to support the mortgage repayments so that the SMSF isn’t going backwards,” he told SMSF Adviser.

“If the member has made salary contributions, those shouldn’t be used to prop up the property.”

Earlier this year, Supavest (formerly known as One Contract Property) released a solution that provides SMSFs with the flexibility to invest in new home and land builds anywhere across Australia.

The offering, which meets all the necessary ATO criteria, provides SMSFs with more choice around where and what type of property they wish to invest in rather than considering only established properties, apartments, or townhouses.

Supavest helps the client find the land and choose a builder.

The SMSF then enters into a single-part contract with Supavest and pays a 35 per cent deposit. Supavest acquires the land and oversees the construction of the property and all payments to the builder.

Upon completion, the SMSF pays the 65 per cent balance. The completed property is transferred. The sale is then finalised, with the SMSF now owning a new investment property.

Prior to the availability of this solution, Mr Hempstead said, SMSF property investments were negatively or neutrally geared, which was taking more money out of their SMSF.

“We found that over the last couple of years, people have been buying blocks of land that have been untitled,” he said.

“With the interest rate rises, we’ve seen over the last several months that some people (outside SMSFs) have not been able to service that purchase for their investment. But they've made some very good capital gains on the property because they've held it for a period of time before it was titled.

“Because of our solution, we’ve seen that they’ve been able to switch over to a single-part contract instead of losing that property and capital gain.”

On the other hand, negatively geared property could compel SMSFs to liquidate their assets (unless they have large cash reserves) because the property may not provide sufficient income on a monthly basis to support the requirements of a pensioner, Mr Hempstead said.

His comments preceded the SMSF Adviser Technical Strategy Day 2023, where he and a panel of speakers will unpack how to navigate SMSF property investment in a high-interest rate environment, and how to manage potential cash flow risks of SMSFs investing in property (particularly if they receive a pension).

As a gold partner of the strategy day, Supavest will educate investors and advisers about how SMSFs have the flexibility to choose the location, builder, and funder of their property through its offering, Mr Hempstead said.

He added that Supavest decided to partner with the Technical Strategy Day because these events raise awareness of changes in the SMSF sector to advisers and trustees.

“At the end of the day, it’s about making sure that clients are getting the best options and make the best use of the money inside their SMSFs,” Mr Hempstead concluded.

To hear more from Raymond Hempstead about how to navigate SMSF property investment in a changing economic environment, come along to the SMSF Adviser Technical Strategy Day 2023.

It will be held at the following locations:

• Tuesday 17 October at Four Seasons Hotel, Sydney
• Wednesday 18 October at Rydges Southbank, Brisbane
• Wednesday 25 October at the Grand Hyatt, Melbourne

Click here to book your tickets so don’t miss out!

For more information, including agenda and speakers, click here.