RBA zeroes in on SMSF property investment: Tread carefully

by Mackenzie McCarty18 Sep 2013

The RBA has outlined borrowing for property investment by SMSFs as being a potential source of future financial instability and sources are warning the industry to tread carefully.

Yesterday’s release of the RBA’s September 3 meeting minutes revealed that in the current environment of low interest rates and slow credit growth, RBA members agreed that it was especially important that banks maintained ‘prudent’ lending standards.

“Property gearing in self-managed superannuation funds was one area identified where households could be starting to take some risk with their finances; members noted that this development would be closely monitored by Bank staff in the period ahead.”

In the wake of the announcement that the RBA would be paying special attention to SMSF property investment, superannuation legal advisers are cautioning SMSF trustees against accepting gifts or incentives linked to investments, including discount cards and free holidays, as doing so could be interpreted as a breach of super rules.

According to the Australian Financial Review, there is, legally, nothing stopping an individual investor from accepting a personal benefit associated with an investment, other than it potentially distorting any decision they make. However, Townsend Business & Corporate Lawyers partner, Peter Townsend, tells the publication that once the investor becomes a trustee of a DIY super fund, it’s a ‘totally different story’.

Townsend says that the definition of a DIY super fund in the Superannuation Industry Supervision (SIS) Act stipulates that no trustee receive any remuneration from the fund, or from any person for any trustee duties or services they perform in relation to the fund.

They can be paid for non-trustee duties if they are a professional in that area of work, he explains, such as a qualified builder who carries out improvements on a DIY fund property. But when it comes to the custodian role, the only small-fund trustees that can be paid for this are professional trustees in the case of a small APRA fund regulated by the Australian Prudential Regulation Authority.

Townsend’s warning and the RBA’s announcement have arrived amidst an upswing in media attention directed at SMSF property development ‘spruikers’, including last week’s Wollongong-based brokerage firm, Laura Dean Financial Solutions, who were offering free overseas holidays to new SMSF property investors.

COMMENTS

  • by Rosemary Johnston (PIAA) 18/09/2013 9:56:35 AM

    The spruikers must be very active to be showing up as at significant levels in the RBA stats and attracting this attention level. Is this the key driver for future regulation of this sector?

    Any SMSF property investment should stack up on its own merits for potential performance, and a sustainable holding profile. This needs to include modelling and stress testing at a variety of interest, capital gains and vacancy rates plus changes in personal circumstances.

    Professional indemnity insurance is key here for the advice component. The insurance underwriters do not back spruikers, nor real estate licences for the provision of advice. One professional course has PI available for suitable property investment advisors. This now includes a small financial planning group that has just received PI insurance to give financial planning and specific property investment advice in the same transaction.

    Property investment advice future regulation has a model in the market place that is based in FOFA principles, underwritten by insurance and supports the client's goals over their lifetime.

  • by Papery 18/09/2013 11:55:18 AM

    Most of the M&D SMSF who get sucked in by the spruikers do so because the spruikers 'advise (while of course not advising) & charge the individuals little if any fees relying on kickbacks from the property developers. Do the spruikers do any modelling...do they refer to quality FP who can advise....no they dont...the sooner ASIC regulate what comes dripping from the property spruikers mouths the better.