The big end of town is moving fast in an attempt to kill off one of the genuine advantages in self managed super — the ability to borrow for property investment.
ASFA, the peak body representing big super funds, has put in a pre-Budget submission to the government arguing inept SMSF investors could create a “downside risk to the taxpayer” taking on too much debt and may even end up going back on the pension.
In a bid to prompt action, ASFA says SMSF borrowing for property has soared “by 5,000 per cent” from $497m in 2009 to $25bn in 2016 and the time has come to scrap the scheme.
But SMSF borrowing was virtually impossible until 2009 when the banks finally started issuing SMSF-friendly loan products.
“The reality is that these figures were coming off a very low base,” says John Maroney chief executive of the SMSF Association which disagrees in principle with ASFA and wants the facility to remain in place for SMSFs.
ASFA would be well aware there are no restrictions for SMSFs investing in managed funds that borrow.
Similarly, there are no restrictions on investing in hedge funds that play in derivative markets or for that matter putting money in bitcoin. But ASFA and other lobbyists in Canberra concentrate instead on a serious attempt to stop an estimated one million “mum and dad investors” from ever borrowing to buy the house around the corner.
Though there is understandable concern that property spruikers may be pushing unsophisticated investors towards setting up DIY funds for property projects, the activity is evidently not widespread.
Indeed the $25bn figure is only about 4 per cent of total SMSF funds currently under management in Australia. Moreover, at least half of all such funds are in small business arrangements known as “business real property” — on this basis the figure could be as low as 2 per cent.
It should also be pointed out the terms of SMSF borrowing are extremely restrictive. Borrowing is strictly limited to property investment in existing dwellings — no development, or rezoning or demolition is allowed. SMSF investors, in the main, are conservative — this is certainly proven time and again in their high portfolio allocation to cash.
There is every reason to believe they will be equally conservative when it comes to property investment whether it is residential or commercial.
In all, there seems to no compelling reason to clampdown on one of the few genuine privileges or running your own super fund.
5 February 2018