SMSFs and property a “ticking time bomb”

by Miklos Bolza07 Oct 2016
A new report by Credit Suisse has said that self-managed super funds are the “shadow bankers” behind Australia’s rising property prices.
 
This has led to a “ticking time bomb” where unsupervised, unregulated SMSFs are being used to leverage property, according The Business with ABC News.
 
In the ABC News report, David Murray, the former chair of the Financial Services Inquiry, resumed his call to ban borrowing to invest in super.
 
“Superannuation funds should not be leveraged including self-managed superannuation funds because leverage magnifies risk,” he said.
 
“If the system is unleveraged then if asset prices rise, bubble and fall, then all the loss is contained within the superannuation fund and does not have another contagion effect because there are no forced sellers of other assets.”
 
In 2006, SMSFs accounted for 20% of all Australian super. In 2016, this rose to 30%.
 
The amount of debt contained within these funds has risen by over 70% annually, said Stephen Anthony, chief economist of Industry Super.
 
“Conservative estimates would suggest that there’s around $150 billion now in property assets in self-managed super.”
 
The use of SMSFs are “potentially exacerbating” the peaks and troughs of the Australian property market, he told ABC News.
 
“So now you have mums and dads rushing into property investment using the tax-subsidised position of superannuation to do so, driving up asset prices, [and] feeding what is already clearly a property boom.”
 
Since self-managed super funds don’t have access to public insurance, this means the owners of these funds remain unsupported if a crisis hits.
 
SMSFs also do not fall under the regulatory supervision of the Australian Prudential Regulation Authority (APRA).
 
“The cost of prudentially regulating SMSFs would, simply by virtue of the sheer number of such funds, be substantial and significantly outweigh any benefits,” said APRA in a statement.
 
Noel Whittaker, financial advisor, had a stark warning for those looking to buy property in this manner.
 
“The average Australian doesn’t trust shares, but they love bricks and mortar. Most people are conned by spruikers into buying overpriced apartments and they will get a bloodbath.”

In June 2015 the Australian Securities & Investment Commission issued advice to SMSF advisers indicating it believes SMSFs should only be opened if they have a starting balance of $200,000 or more. 
 

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