Cate Bakos in her property in Yarraville, Melbourne. "The key issue is cash flow," she says. Elke Meitzel
Cate Bakos, who has four investment properties in her self managed super fund, believes many investors are encouraged to buy real estate without fully considering their ability to finance purchases in the long term.
Westpac Group yesterday said it has stopped lending on SMSFs in response to a mix of growing credit and market risks, regulatory pressure and funding costs being experienced by all lenders.
"The key issue is cash flow," said Mrs Bakos, who has a rented period house in Hobart, two commercial lock-ups, and her Yarraville office in a fund with her husband Ian.
Many investors are being squeezed by rising costs, falling prices and increased pressure to find tenants for rental properties in markets where over-supply of new apartments is forcing heavy discounting.
In addition, many apartment buyers are discovering they are liable for maintenance costs covering up to 400 items ranging from ranging from light bulbs to lifts, which are often not fully disclosed until warranties expire 12 months after settlement.
Ms Bakos, a buyers' agent, said tougher scrutiny of loans by lenders has halved the number of investors buying property for their SMSFs during the past year.
Many borrowers are also being squeezed because lenders are reducing the size of the loan in the period between the pre-approval and purchase.
"I am a big fan of long-term investment. Property should never be a short-term investment. Many investors are struggling to cover the high settlement, maintenance and debt-funding costs," she said.
There are also the additional costs of establishing a SMSF, monitoring performance and complying with the strict accounting and legal rules.
"You need good advice. Just because you think you understand or prefer property does not mean it is good for your SMSF."
The potential risk is amplified in a SMSF because of contributory caps that limit the amount the scheme member can spend on a property.
By Duncan Hughes
16 July 2018