Beware SMSF spruikers
Among these property promoters are those not licensed to give advice on self-managed superannuation funds (SMSFs), let alone qualified to make recommendations to borrow and invest in real estate. The property sale is everything. Properties promoted on the internet are likely to have over-inflated prices. After all, the kickbacks that flow between the promoters, property developers and real estate agents have to be paid by someone. Paying too much for property could lead to the investor having negative equity - where the investor owes more on the property than it is worth.
The Australian Securities and Investments Commission needs to get ahead of the curve on this one. We have seen too many instances where the regulator has come in too late, after the money is lost. It appears the regulator is being proactive. Promoters are being investigated, including those that are not licensed to give advice. The regulator is worried more generally about the marketing of SMSFs to investors that should not have them, and has a taskforce looking into a range of matters to do with SMSFs.
SMSFs are probably only suitable for a minority of the population. At least $200,000 in super savings is needed to make the costs worthwhile. Large funds usually provide discounted life and disability insurance with automatic acceptance. If you set up an SMSF you will have to buy insurance as an individual. Those who should be holding real estate in their SMSFs are likely to be a minority of those with SMSFs.
The real-estate strategy is best suited to younger trustees on higher incomes with secure jobs who already have substantial assets in their funds. In the pension phase, a certain minimum percentage of the fund's assets has to be drawn. Unless there are a lot of other assets in the fund, the property will have to be sold to be able to meet the minimum draw downs. Most of the tax breaks on holding property in super are on the capital gains when the property is sold. There would need to be a fair amount of time, at least a decade, for the property to increase in value sufficiently to more than make up for the significant costs of buying, holding and selling property.
Independent advice from those who are properly qualified should be sought. They will take into account all of your circumstances before making recommendations.
Frequently Asked Questions about this Article…
Buying property through an SMSF promoted online can be risky because some promoters are unlicensed, may overstate returns and push overpriced properties to cover kickbacks, and that can leave investors with negative equity. Regulators like ASIC are investigating these promoters, so be cautious and check credentials before acting.
Yes, it is possible to borrow in an SMSF to buy property, but it carries extra risk — especially when advice comes from people not licensed to recommend SMSF borrowing. If you’re considering borrowing in an SMSF, get proper, licensed advice and understand the long‑term costs and risks involved.
Property promoters, developers and agents can earn kickbacks that get built into the price of promoted properties, meaning advertised deals online may be over‑inflated. Paying too much increases the chance of negative equity and reduces the chance the investment will deliver the projected returns.
SMSFs are likely suitable for only a minority of people — the article suggests you generally need at least $200,000 in super to make the costs worthwhile. The real‑estate strategy is best suited to younger trustees with higher incomes, secure jobs and already substantial SMSF assets.
No — large funds often provide discounted life and disability insurance with automatic acceptance, whereas SMSF members typically have to arrange and buy insurance individually, which can be more expensive or harder to obtain.
Most tax advantages for property held in an SMSF come from capital gains on sale, so you generally need a long horizon — the article suggests at least a decade — for price growth to outweigh the significant costs of buying, holding and selling property.
In the pension phase you must meet minimum drawdown requirements on a percentage of the fund’s assets. If most of the SMSF value is locked in property, the trustee may be forced to sell assets to meet those minimum payments unless there are sufficient other liquid assets in the fund.
Seek independent advice from properly qualified and licensed advisers who will consider your full circumstances before recommending SMSF property, and be wary of slick online promoters. Check regulator activity — ASIC is monitoring SMSF marketing — and make sure the strategy fits your time horizon, cash flow and insurance needs.
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