SMSF lending: Call to ban "accident waiting to happen"

by Rebecca Pike16 Feb 2019

A property group is calling for legislation to ban borrowing for property against self-managed super funds (SMSF).

RiskWise Property Research has said all the major banks pulled out from offering the product last year as well as their subsidiaries and other banks like AMP.

According to CEO Doron Peleg, the ATO had also expressed concern about the risk to the retirement savings of individual SMSF trustees in the event of property decline and the Financial System Inquiry recommended a ban on direct borrowing by SMSFs to prevent an unnecessary build-up of risk in the superannuation system.

Peleg called lending to SMSFs an “accident waiting to happen as people gamble with their retirement funds”.

“Super is the only asset class you can leverage against but using it to buy property is definitely high risk if things go wrong,” he added.

Peleg said this risk had been acknowledged by the major banks and the Council of Financial Regulators should take notice and implement it across the entire industry.

However, while most banks have halted the practice, non-banks lenders are filling the void and continued to do so.

There are more than 600,000 SMSFs in Australia, managing nearly $750,000 in assets, according to APRA.

RiskWise said many SMSF borrowers were choosing off-the-plan properties, which Peleg said carry a large level of risk largely due to potential oversupply, leading to squashed property values, high vacancy rates and a cooler market.

Peleg said, “What this means is that many individuals fall into debt they can’t climb out of as their SMSF hits the ‘rock bottom’ known as a ‘property bust’.”

Peleg said when considering buying property through a superannuation fund it was important to identify loss of income if there was an oversupply in the area and there was a problem finding

tenants to rent the property, especially as these dwellings appealed to a limited market and not families with children seeking bigger homes and a decent-sized block.