Bricks and mortar look a super solution

FALLING returns on cash deposits may accelerate a push into property by self-managed superannuation funds (SMSFs) in the new year, observers say.

The proportion of funds held in short-term deposits and property has increased as SMSFs delay their next investment decisions, according to fund administrator Multiport.

Multiport oversees 2600 SMSFs with combined assets of $2.2 billion.

Funds invested in property rose 1.3 per cent over the year to September, while fixed-interest, long-term deposits fell from 14 per cent to 10.6 per cent, according to Multiport. About 11 per cent of funds were in short-term term deposits.

If Multiport's figures were extrapolated across the industry, that would equate to nearly $48 billion in funds, technical services director Philip La Greca said.

"That's a lot of cash that's going to be looking for a home," he said. "You might see another spurt into property unless the markets pick up and that becomes an attraction."

But there were risks for SMSFs seeking to buy property, said Peter Burgess from SMSF Professionals Association of Australia.

"There are quite complex arrangements to put in place and they can be very difficult and costly to unwind if they are put together incorrectly," he said.

A common mistake funds made was registering the asset's ownership under the super fund rather than the security trust, he said.

Small businesses were attracted to SMSFs and that was reflected in the figures, he said. "If you've got a SMSF and you own a business premise, you can sell that to your fund and rent it back from your fund. There are good tax benefits to that."

Dean Mynott, a partner in building automation company Ronin Control Systems, recently set up a SMSF where the main asset is a warehouse and office in Kensington.

Mr Mynott and business partner Greg Hatcher transferred their personal super from an industry fund into a joint self-managed account to invest in the property that Ronin Controls will tenant.

"One of the chief advantages is that any income the super fund attracts is only taxed at 15 per cent. Down the track when we're ready to retire, that money comes out without being taxed," Mr Mynott said.

The fund paid $600,000 for the factory, with a portion funded using a loan. "I would recommend getting sound financial advice from someone experienced in setting it up," Mr Mynott said.

Investments in non-residential property were "starting to get traction", driven by a generational change among small business owners, Mr La Greca said. Figures from the Tax Office show a large portion of SMSFs invested in property are in non-residential assets: $50.8 billion compared with $15.5 billion.

For many smaller business owners with limited super, it was an attractive option, he said.

"This is a way of moving into a more normal retirement structure a little earlier. But you still need to look at it as a true arm's-length investment decision," he said.

Most of the major banks were now aggressively advertising products around self-managed super funds and their borrowing rules, Mr Burgess said.