Cashed-up super 'smurfs' throw weight around

The rebound in the property market is being led, in part, by the rocketing popularity of self-managed super funds.

The rebound in the property market is being led, in part, by the rocketing popularity of self-managed super funds.

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.

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