Cashed-up super 'smurfs' throw weight around
About 478,000 so-called "smurfs" are operating in Australia and 23,000 new funds are created each year, according to the Tax Office. And they are starting to wield enormous financial clout, accounting for about $439 billion in assets, including shares, cash, residential and commercial property.
Eager SMSFs, along with businesses and other private-investment vehicles, see bricks and mortar as a super solution and they spent $904 million on investment housing in February alone, up 76 per cent on the same time last year. And the proportion of funds held in short-term deposits and property has increased as SMSFs delay their next investment decisions.
One fund manager, Multiport, oversees 2600 SMSFs with combined assets of $2.2 billion.
Funds invested in property rose 8 per cent over the year to March, while fixed-interest, long-term deposits fell from 12.3 per cent to 11.2 per cent. About 9.8 per cent of funds were in short-term deposits.
If Multiport's figures are extrapolated across the industry, they 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. Property seems to be the comfortable spot people are looking for."
The proportion of SMSFs buying property as a direct asset has shot up - 88 per cent of real estate in Multiport's funds is held directly as opposed to trusts or other vehicles.
"We put that down to the gearing," Mr La Greca said.
But there are risks for SMSFs seeking to enter the property market, observers caution. The rules are complex and funds can be difficult and costly to unwind if put together incorrectly.
The sheer scale of funds available in SMSFs have attracted the attention of regulators and government, including mooted plans to levy new taxes in a bid to boost revenue.
The Australian Securities and Investments Commission, on the other hand, has signalled its growing concern about rogue operators and "property spruikers" who could be rorting the system.
"Unlicensed financial advice in the SMSF sector will be a focus for ASIC in 2013 and we will be taking regulatory action against unlicensed operators," ASIC said last month.
"In particular, we will be targeting property spruikers. We do not want to see SMSFs become the vehicle of choice for unscrupulous operators."
Meanwhile, AMP head of investment strategy Shane Oliver cautioned that property values, just like all investments, will go up and down over time.
"The historical experience of investment markets - be they bonds, shares, property, infrastructure, whatever - constantly reminds us they go through cyclical phases of good times and bad," Dr Oliver said.
Frequently Asked Questions about this Article…
According to the Tax Office data in the article, about 478,000 SMSFs are operating in Australia, with roughly 23,000 new funds created each year. Together they account for about $439 billion in assets, including shares, cash and residential and commercial property.
The article says many SMSFs are favouring bricks-and-mortar investments: SMSFs, businesses and private investors spent $904 million on investment housing in February (up 76% year‑on‑year), and funds invested in property rose 8% over the year to March. That surge in demand and cash looking for a home is helping drive the property rebound.
SMSFs hold a mix of shares, cash and property. The piece notes funds invested in property increased, fixed‑interest and long‑term deposits fell from 12.3% to 11.2%, and about 9.8% of funds were in short‑term deposits, reflecting a shift toward property and readily available cash.
The article warns that SMSF property strategies can be complex: the rules are complicated and funds can be difficult and costly to unwind if set up incorrectly. Regulators are also watching for unscrupulous operators and property spruikers, so getting proper, licensed advice is important.
ASIC has signalled growing concern and said unlicensed financial advice in the SMSF sector will be a focus — in the article it said it will take regulatory action against unlicensed operators and specifically target property spruikers to protect SMSFs from being exploited.
Multiport oversees about 2,600 SMSFs with combined assets of $2.2 billion and reports 88% of the real estate in its funds is held directly. The article says if Multiport’s patterns are extrapolated across the industry, it would equate to nearly $48 billion in funds actively seeking investment — highlighting the scale of SMSF influence on markets.
The article links the rise in direct property holdings in SMSFs to gearing — SMSFs often use borrowing strategies to buy property, which helps explain why a high proportion of SMSF real estate is held directly rather than through trusts or other vehicles.
No. AMP’s head of investment strategy, Shane Oliver, is quoted in the article reminding readers that property — like bonds, shares and other investments — goes through cyclical phases and will experience ups and downs over time.
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