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Is this the end of borrowing for property in your SMSF?

Is this the end of self-managed super funds buying property?

Well it could be if the government accepts the recommendation of the recently released Murray Financial Systems Enquiry.SMSF - The Power of Super - Superman Picture Feb 2012

This report made 44 recommendations to the government, but one of the more significant recommendations for property investors is that self-managed superannuation funds be banned from borrowing to buy assets such as property and shares.

Specifically the recommendation is:

 “Restoring the original prohibition on direct borrowing by superannuation funds would preserve the strengths and benefits the superannuation system has delivered to individuals, the financial system and the economy and limit the risks to tax payers,”

The Financial System Inquiry found that an explosion in borrowings within super funds from $497m to $8.7bn since 2009 posed a risk to the stability of the financial system and was inconsistent with the aims of the superannuation system to provide retirement income.

It also calls for a series of changes to improve the efficiency of the superannuation system, arguing that higher balances and consolidation to create fewer, larger funds, has not delivered the expected benefits and been offset by higher costs elsewhere in the system.

What does that mean for you as a property investor?

nest egg superannuation super retirementWell…I’ve recently made a significant purchase in my SMSF using borrowed funds, and I know many other Australians are  (were) planning to.

Of course there is no suggestion the recommendation will be accepted, or how it may be implemented, but if you have been considering utilising this strategy, then I suggest you seek independent advice on your next moves.

The government is seeking feedback from the industry about the recommendations made and the closing date is 31 March 2015, and I can imagine there will be strong lobbying from interested parties with deep pockets, so no decisions will be made in the next 3 or 4 months and there is no guarantee any changes will be made at all.

What if I already own a property in my SMSF?

Murray says SMSFs with existing borrowings should be permitted to maintain those borrowings. However funds disposing of assets purchased using borrowed funds would be required to extinguish the associated debt at the same time.

The bottom line

This is the first wide scale review of our financial system in 17 years and there were 44 recommendations to the government from the inquiry.

Previous financial system inquiries, including the Campbell Report in 1981 and Wallis Report in 1997, were the catalysts for major economic reforms in Australia.

The Campbell Report led to the floating of the Australian dollar and the deregulation of the financial sector.australian dollar

The Wallis Inquiry led to streamlined financial services regulation, the creation of the Australian Prudential Regulation Authority (APRA), and the current form of the Australian Securities and Investments Commission (ASIC).

There’s a lot to digest in this report and Treasurer Joe Hockey won’t respond until next year and is unlikely to act until he gets feedback form his advisors and other interested parties.

As a property investor – watch this space and if you are considering investing in property through your SMSF please seek independent advice from an appropriately qualified practitioner – not a property salesperson or off the plan marketer.

If you’re not sure who to speak with why not have a chat with the multi award winning team at Metropole. We have no properties to sell, so our advice is independent and unbiased. Now we can’t advise on borrowing in an SMSF – that’s financial advice – but we do know who to refer you to.

So if you’re looking for independent property investment advice to help you become financially independent, including how to get he banks to say yes more often to you, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties on the market to sell, so their advice is unbiased.

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Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.

Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Is this the end of borrowing for property in your SMSF?' have 3 comments

  1. Avatar for Property Update

    December 12, 2014 @ 9:47 am Vic

    If this recommendation goes through, couldn’t it have a significant negative impact on the housing market if the demand from all of those SMSF’s dries up……..particularly the new multi-unit developments that are being built to market to the SMSF investors. If all the new developments hit the market without the demand from investors, they will flood the market, devaluing the stock which will flow through to the existing established products……

    Reply

    • Avatar for Property Update

      December 12, 2014 @ 10:38 am Michael Yardney

      Vic thanks for the comment. Sure there will be some flow on effects but not as bad as some suggest

      A huge percentage of the off the plan market is currently being sold to overseas investors who won’t be affected by this. And a very large % has to be presold for the development to get out of the ground – what it will do is slow down new development.

      No doubt it will also affect the established market a little as many SMSF’s buy established properties

      Reply


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