06 Nov Will SMSF Borrowing Last?

If you’ve been reading this column for any length of time you’ll recall my ongoing warnings about spruikers pushing leveraged property in self-managed super funds (SMSFs).

Those warnings have a little more weight behind them with the release of the draft report of the Murray Inquiry into Australia’s financial system.

Noting the increasing growth of borrowing within SMSFs, the draft report noted direct leverage by superannuation funds “may create vulnerabilities for the superannuation and financial systems.”

It recommended that super funds no longer be allowed to borrow as there are ample opportunities and tax benefits for investors to borrow outside the superannuation system.

And this brings me to an important point, buying and borrowing for property outside the superannuation system is much less complex, so an investor is less likely to be led down the garden path.

If someone is interested in buying an investment property outside super they can basically handle the whole transaction themselves – from finding the property to organising finance.

In this instance they’ll have a significantly better understanding of the market they’re purchasing in.

Because of the complexity of the SMSF set-up, it requires specialist advice and the shonks have zeroed in on this, setting up “one stop shops” and anointing themselves “property advisers” – which is a meaningless term your dog could use.

The “one stop shops” conveniently have off the plan properties ready to sell because they’re getting huge commissions from developers to sell them.

This highlights the big danger – the SMSF investor is paying an inflated price for these properties with the commission factored into the sale price.

And there’s no recourse because property isn’t classified as a financial product by law.

The cruel part for investors who’ve suffered this fate with their SMSF is, while real estate markets in some capital cities have gone up, the value of their property in those same cities has gone down.

Stay financially aware!