I have written about this subject before in my blogs however it is still attracting plenty of media attention so I thought it was worth further comment.
It relates to borrowing to buy property in a Self-Managed Superannuation Fund (SMSF) under a Limited Recourse Borrowing Arrangement (LRBA).
Certain articles in the media are alluding to the fact that SMSFs are “out of control” and responsible for the “spiralling numbers” of residential property purchases via borrowing arrangements. These articles are hinting that SMSFs are responsible for a number of impending disasters, including:
As always the media is only half-right in the reporting of the facts in relation to this topic. For example, some of the media articles have been based on comments by leaders of Industry Super Funds who have been losing many of their members transferring their Superannuation accounts to SMSFs. Also, the media has reported the “alarming exponential growth” of SMSF property borrowings when in fact the numbers are coming off such a low base (a few hundred borrowing arrangements out of over 500,000 SMSFs), that the growth figures will always appear to be massive. The actual numbers of borrowing arrangements are still quite small.
We are comfortable with residential property as an investment in an SMSF, but the investment fundamentals must stand up, irrespective of whether borrowings are involved.
What do I mean by fundamentals?
As this type of transaction is becoming more common, we are finding the banks are adapting rapidly to consumer demand and their costs to establish a loan facility in a SMSF are now reducing closer to “normal” loan costs.
However, before you fly out of your office to buy a property in your super fund we still urge you to proceed with caution. There may be simpler and more strategic ways to structure the purchase of property outside a SMSF structure.
There are 3 golden rules you must attend to prior to entering such a transaction:
Green Taylor Partners have helped many clients with their SMSF property decisions. However, we have also ensured many more clients didn’t borrow to buy property in their SMSF as it would not have suited their circumstances. If in doubt, contact our team of SMSF specialists.