Self-managed super funds are flocking to real estate - so how can brokers make the most of this unique opportunity?
Video transcript below:
Donna Sawyer, Australian Broker News TV
Donna Sawyer: Hi, I am Donna Sawyer and you are watching the Big Story on Australian Broker News TV.
Self managed super funds are making a beeline for real estate as many choose to make the most of recent tax changes, rather than navigate their way through volatile share markets. Since 2007 self managed funds have been able to borrow to invest in property, but the ATO recently ease those rules allowing them to improve the value of their investment homes. Tony Hayek, CEO of Blue Wealth Property says the sky is the limit for brokers pushing into the SMSF space.
Tony Hayek, Blue Wealth Property
Tony Hayek: 84% of Australians are retiring on less than $21,000 a year, 84%, which means that if a broker is in a position to educate their clients, they could potentially change their life and if you can potentially change the lives of your clients, what kind of impact does that have on your business. You get more referrals, you retain them for longer, you do more repeat business with them and when they are a barbeque they tell everybody. Yeah, so it’s you know, brokers can really benefit from this space, it’s enormous.
Donna Sawyer: Peter Burgess, Technical Director of the SMSF Professionals Association of Australia says property investment is likely to be more attractive to do it yourself funds, now that the rules have been clarified by the tax office.
Peter Burgess, SPAA
Peter Burgess: It’s quite a positive announcement coming out of the ATO, there was some confusion or some uncertainty around the way these limited recourse borrowing arrangements worked prior to this draft ruling. There was certainly a lot of confusion, lot of uncertainty around whether you could improve the asset and that was a big deal for people wanting to purchase properties via these arrangements. And also the other uncertainty was if the property was destroyed perhaps by fire or some form of natural disaster, there was some uncertainty as to whether you could actually replace the asset within these arrangements. As a result of this draft ruling that’s been clarified and the ATO has relaxed I guess their stance on some of those issues.
Donna Sawyer: Jason Nelson, Director of Niche Lending says he has seen a significant spark in the number of self managed super funds looking to invest in property.
Jason Nelson, Niche Lending
Jason Nelson: I think essentially the accountants are more attracted to borrowing within the self managed super fund. The rules seemed to not be attractive to them previously. However, many accountants now that we deal with are wanting to talk a lot further about self managed super fund lending. They have got existing clients that already own the commercial property within their own names, they are business owners and quite a few of them are looking at transferring that property into a self managed super fund and also just about every client I’ve got that’s buying a commercial property for their business, a new commercial property, self managed super seems to be a very, a big attractive offer.
Donna Sawyer: Dr. Hayek from Blue Wealth Property says he too has seen a dramatic rise in the number of SMSFs investing in property, particularly amid increasingly turbulent markets.
Tony Hayek: I can tell you from the experience and the shift in our business that it’s real. It’s not something that might happen, it’s happening. We sell hundreds of properties every year to investors all around the country and you know 3 years ago, one in 20 - 25 properties we sold was to an SMSF. Now 1 in 6 ½ properties is to an SMSF and we sell a lot more property now than we did 3 years ago. So it is a massive trend and you know Aussies are realising that there is this great advantage of buying a property in your self managed super fund. One, you can leverage into a bigger asset and two, you can choose the asset that you invest in. So and I think you know the volatility of the share market has made people realise that they need to take control, otherwise they are going to end up retiring on less money than they need.
Donna Sawyer: He says SMSFs present a unique opportunity to brokers particularly those who are willing to diversify.
Tony Hayek: The mortgage broker is uniquely positioned in the market to take on the responsibility of guiding their clients in new directions and the broker of today has to diversify. If they don’t diversify they are going to die, yeah. The old days of just being someone who provided your client with loans is dying and dying quickly and you will see, you can see in the marketplace that a lot of them are now diversifying into insurance and property and other things. So they are becoming more of an overall advisor.
Donna Sawyer: So how can brokers capitalise on this emerging market? Jason Nelson from Niche Lending says education is the key.
Jason Nelson: Probably the main thing is to get trained within self managed super funds and lending to self managed super funds and then also getting out and talking to the referrers, accountants, financial planners, but also your existing client base, let them know that it is an option and if they wanted to pursue it, perhaps get in contact with our accountant or financial planner initially to discuss the options.
Donna Sawyer: For more on property investment and other industry headlines, click around the Australian Broker News website. I am Donna Sawyer and I will see you again next week with the Big Story.