Specialist lender predicts surge in SMSF borrowing

by Julia Corderoy30 Oct 2015
A leading specialist commercial property lender says SMSF lending enquiries have increased more than threefold in the short time since the publication of the government’s official response to the Financial System Inquiry, which rejected the Inquiry’s recommendation to prohibit direct borrowing for limited recourse borrowing arrangements by SMSFs.

Jonathan Street, CEO of Thinktank told Australian Broker that the sudden surge is most likely pent up demand after the FSI caused uncertainty. However, he expects that enquires will continue to grow steadily into next year.  

“This rapid escalation in activity is most likely the release of some pent up demand which had been on hold pending the government making an announcement on the future of SMSF borrowing. 

“We presently expect this interest will extend out over the remainder of the year and into early next year while from this point forward, we anticipate there will be a further wave of business owners and investors who look to take advantage of owning property in an SMSF now the way is clear. Our own expectations are for volumes to double or triple over the next year.”

According to Street, SMSF borrowing can provide a number of benefits for consumers.

“The major advantages for members of an SMSF when it comes to commercial property are to acquire either their business premises or an investment property via the Fund so as to benefit from favourable tax treatment once they retire and enter the pension phase,” he told Australian Broker.

“If correctly structured, in retirement there will be limited or no tax payable on rental income received, nor capital gains tax upon sale. Prior to then and while their business or a tenant occupies the property, the rent paid back to the SMSF can generate a high level of return and will help pay the loan down. 

“At the current low interest rates, this can prove to be a very powerful approach to long term wealth management and wealth creation.”

In turn, says street, this also creates significant opportunities for brokers, as they provide a central role in SMSF borrowing.

“It in turn creates considerable opportunity for brokers who can now confidently contact their self-employed and SME clients to alert them to the potential and then to work in with the associated professional advisors to bring the structure and finance together,” he told Australian Broker

“Whether purchasing, refinancing or transferring ownership from personal names or a unit trust into an SMSF, brokers will definitely be playing a central role in an area that we are sure will see a lot of high quality activity over the coming years.”