Self-managed super funds (SMSFs) investing in residential housing have not been a “market mover” in this property sector, says SMSF Association CEO John Maroney.
“When the Sydney and Melbourne property markets, in particular, were enjoying strong growth, there was ill-informed comment that SMSF investment in residential property was a key factor fuelling prices, especially as these funds had access to debt via Limited Recourse Borrowing Arrangements (LRBAs).
“The most recent Australian Tax Office annual statistics to 30 June 2016 show that SMSFs hold $25.4 billion in LRBAs, with these financial instruments being predominantly used to invest in residential and non-residential property in an almost 50-50 split.
“That estimated $12 billion where SMSFs have used LRBAs to invest in residential housing has to be put in the context of a $6.05 trillion housing market as of June 2016. In other words, LRBAs comprise only 0.20% of the housing market – hardly a figure to shake the market.”
Maroney says this selective use of statistics to portray SMSFs as a “market mover” in the residential property market is just one example of how the SMSF sector is being “unfairly targeted” regarding property investment.
“Critics cite the fact that SMSF borrowings grew 50 times, from $497 million in June 2009 to $25.4 billion by June 2016, with more than 90 per cent of it related to property.
“What they fail to add is that LRBAs still only make up 4% of SMSF assets at $25.4 billion, that they started from a small base in 2009, and a change in the way the ATO reported LRBA statistics in 2013, when the figure was revised from $2.6 billion to $8.3 billion, has distorted the statistical analysis.
“It has also been stated that in the five years to 30 June 2016, SMSFs with borrowings increased from 4% to 9%, and that the average amount borrowed also rose 4%, from $356,000 to $372,000.
“This has taken LRBA analysis out of context. The fact is only 6.92% of SMSFs have LRBA borrowings, and of this percentage only 5.97% relate to Australian property.
“The Association does not deny that LRBAs have become a more widely used financial instrument, but with evidence by the SMSF administrator Class showing that most of this debt is held in the accumulation phase, with SMSFs they administer 10 times more likely to have a geared investment in accumulation phase than in pension phase, then we believe the sector is capable of using LRBAs responsibly to build their retirement savings.
Moroney also stresses that the ATO statistics being used are compiled from the SMSF annual return that is a regulatory tool and can limit the quality of SMSF data on investment issues. Better information on LRBAs will be sourced from the 2017 SMSF Annual Return that requires more granular information from SMSFs on their LRBA investments.
He says the Association understands “unscrupulous spruikers” have used LRBAs to promote SMSF property investment, and has always fully supported ASIC’s efforts to stamp out any unlicensed and unethical marketing behaviour.
“We also urge any SMSF trustee considering using an LRBA to get specialist advice. They are a complicated investment tool and trustees need to carefully examine whether it’s the right option for their investment portfolio.”