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Property gains favour with SMSF’s

As the world watches global sharemarkets bounce up and down erratically from day to day (generally with more downs than ups), and the ATO makes owning real estate in a self managed super fund more appealing, a growing number of Australians are choosing to include real estate as part of their super nest eggs.

Currently there are 440,000 self managed super funds in Australia, holding around 32 per cent or $430 billion of the entire nation’s total super contribution.

Initially SMSF’s became a popular property investment option when the tax office ruled that self managed funds were able to borrow to invest in real estate in 2007.

Recently the ATO sweetened the SMSF cake with a nice big dollop of icing, easing the rules to allow for improvements to properties held within self managed funds in a bid to increase the value of investments. This is an about face from the ATO’s previous guidelines, which did not permit the use of money from any source to enhance properties held within a SMSF.

The draft ruling now allows improvements such as upgrading kitchens or banging up an extension provided that the money to do so comes from within the fund and the renovation adheres to the fundamental nature of the property.

While data regarding the asset types held within DIY super funds is not readily available, one self managed fund administrator says about 14 per cent of their 1600 SMSF’s were borrowing to buy assets. Of those, about half were buying real estate.

In a Sydney Morning Herald article, technical services director for Multiport Philip La Greca, said there has been a 25 per cent rise in the number of funds borrowing to invest since the beginning of 2011.

”It’s about a 50-50 split between those who borrow to acquire financial assets and those who borrow for property,” La Greca said.

”There is certainly more interest in it. That’s to do with the fact people are looking around and saying, ‘Where else can I invest?”’

At Metropole we’re seeing more and more Baby Boomers take their money out of industry Super Funds and set up their own SMSF’s with the intention of buying another investment property. Obviously you should get financial planning advice before you make this type of decision, but super is a great vehicle for asset protection and is very tax effective.

Maybe looking at your super and seeing how you can use it more effectively is something you should be putting on your to-do list for this New Year.

 



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About

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


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