IS THERE ANOTHER WAY
for landlords?

The Australian Taxation Office (ATO) reported a

significant increase in SMSFs showing interest in

property investment. According to the latest ATO

SMSF statistics for 2023, Australia had 606,217 SMSFs

managing assets totalling $889.5 billion.

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Property investment

Overall SMSF investment in residential real property,

both directly and through Limited Recourse

Borrowing Arrangement (LRBAs) assets, was $70.2

billion in 2020–21, representing 0.8% of the total

Australian residential property market of $8,924.6

billion.

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Several factors have contributed to the surge in

SMSFs exploring property investments.

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However, understanding the incentives behind this

movement can provide insight into why it is so attractive.

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It is crucial to emphasise that such

decisions should only be made after

thorough consideration and planning

with advice and guidance from your

financial planner and accountant.

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HERE ARE SOME OF THE PRIMARY

MOTIVATIONS:

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1. Underperformance in the stock market​

The enduring underperformance of the stock market has

been a prominent driver behind the growing interest in

SMSF property investments. Over the past 18 months

investors have faced a challenging environment

marked by increased volatility and subpar returns.

This period has heightened concerns about the

sustainability of traditional stock based portfolios.

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Investors looking for more stable and

predictable investment avenues have turned

their attention to property.

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Investors perceive property as a safer harbour for their

funds, a place where value tends to grow consistently

over time. This appeal to stability has been a catalyst in

the SMSF property investment trend.

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2. Limitations on borrowing capacity outside

super

The surge in property prices over the past 18 months,

accompanied by increasing interest rates, has

made traditional property acquisitions unaffordable

for many individuals. Stricter lending criteria and

increased serviceability buffers have reduced

borrowing capacities for prospective property buyers

including property investors.

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For those with limited financial resources, it has

become exceptionally challenging to secure financing

for property investments outside the superannuation

environment.

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By utilising their superannuation savings as leverage,

investors may be able to access funds they may not

have been able to obtain through traditional loans.

This approach may provide an opportunity to enter

the property market when direct investments might

have been financially unattainable.

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3. Perceived value and tax benefits

The enduring allure of property as a valuable and

tangible asset is rooted in its potential for long term

capital growth and potential tax benefits. This perception

has been further enhanced by the growing realisation

among Australians of the potential tax advantages

linked to holding property within an SMSF, particularly in

preparation for retirement.

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Please speak to your Financial Adviser or Accountant if

you would like to know and understand more about how

property investments may offer a unique advantage when

it comes to capital gains tax.

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The prospect of tax advantages has played a

pivotal role in driving interest towards property

investments within SMSFs, making it an attractive

and viable wealth building strategy for some.

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4. Growing confidence in property

Confidence in the property market has been steadily on

the rise. Investors have come to view property as a more

secure and comprehensible asset class, especially when

compared to the unpredictability of shares and stocks.

The tangibility of real estate, the ability to inspect and

understand the asset and the familiarity with the property

market can all contribute to a sense of confidence.

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This growing faith in property is bolstered by historical

data that often illustrates steady property price

appreciation over time. Investors seeking assets they

can trust have gravitated towards real estate. The sense

of control and familiarity that comes with property

ownership has been a reassuring factor that has influenced

SMSF investors to explore property as a viable investment

option.

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5. Need for a substantial deposit

Purchasing property in personal names typically demands

a substantial upfront deposit or using the equity in

your home. This can be a significant barrier for many

prospective investors. Accumulating a sizeable sum

for a down payment can be a lengthy and challenging

process, and using the security of your home frightens

others.

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SMSFs may offer a solution by enabling

individuals to pool their superannuation savings.

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This collective approach provides access to a more

substantial capital base, thereby potentially reducing

the financial burden associated with property

acquisitions. This appeal of shared financial resources

has been instrumental in enabling some individuals to

engage in property investments that might have been

out of reach through conventional means.

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A combination of underperforming stock markets,

limited borrowing capacity outside super, perceived

value and potential tax benefits, growing confidence

in property and the need for a substantial deposit

have fuelled the increasing appeal of this investment

strategy.

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When considering property investments within

an SMSF, it’s important to understand the types of

properties that garner interest.

These include:

• commercial units,

• standard residential properties, and

• occasionally land.

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Potential capital gains tax advantages and the potential

for returns during the investment period are additional

draws to this strategy.

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Using an SMSF for property purchases also has the

advantage of keeping these investments separate from

personal investments. This separation minimises the

impact on borrowing capacity for personal investments

compared to acquiring property in one’s name.

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While there are benefits to investing

in property through an SMSF, it’s

crucial to be mindful of the potential

risks and drawbacks.

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Making informed decisions regarding SMSF property

investment requires a thorough evaluation of one’s

retirement goals and financial situation. Seeking

advice from our network of financial planners, SMSF

accounting specialists and expert SMSF managers

is advisable to navigate the complexities of this

investment strategy successfully.

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Keen to know more?

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Disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is

appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal,

tax or financial advice and you should always seek professional advice in relation to your individual circumstances. ©2024

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