Self-managed super fund owners who want to plough their savings into investment properties will now be knocked back by every major bank, after Commonwealth Bank became the last lender to shut shop on the concerning products.
The move comes as house prices soften across the nation and ahead of a potential crackdown on “SMSF property one-stop shops” by the corporate regulator in the wake of damning revelations at the royal commission about
The nation’s largest bank will no longer make loans to SMSF owners for property investment from the mid-October. The move comes hot on the heels of a similar decision by Westpac, which in July decided it would no longer be offering SMSF property investment loans. Now none of the four major banks, which control 80 per cent of the housing market, will be selling the loans.
CBA’s exit comes amid rising scrutiny on the surge in self-managed super funds borrowing large sums of cash to sink into investment properties, as falling house prices and stalling rents reduce earnings.
“As part of our strategy to become a simpler, better bank, we are streamlining our product portfolio and have taken the decision to discontinue our SuperGear lending product which enabled investment in residential and commercial property through self-managed super funds,” a CBA spokesman said.
“We will continue to support our existing customers who have these loans with us.”
Self-managed super funds now make up almost 30 per cent of the $2.7 trillion super sector, with SMSFs being set up at the rate of 2800 a month.
Total assets in SMSFs increased 65 per cent to $697 billion in the five years to the end of last year. More than 1.1 million Australians now have a self-managed super fund.
While the Productivity Commission’s latest report on the superannuation sector said the rise in borrowing through super funds to invest in property was not a systemic concern to the system, it said it warranted further monitoring.
However, the SMSF manoeuvre has copped heat from many in the banking sector and from the Labor Party.
Treasury spokesman Chris Bowen recently raised concerns that SMSF borrowing had grown by more than 860 per cent since 2012.
The royal commission has also unearthed a systemic problem across financial advice outfits that spruik SMSF property investment and stand to win lucrative fees whether or not it is in the best interests of clients.
The royal commission heard one instance in which former celebrity financial adviser Sam Henderson had advised Fair Work Commissioner Donna McKenna to roll her existing superannuation into an SMSF and borrow through it to invest in property, which would have immediately resulted in her losing $500,000 as a penalty for early redemption from her fund.
Regulators are now targeting the use of SMSFs to invest in property after the Australian Securities & Investments Commission found 90 per cent of financial advice for self-managed funds failed to comply with the “best interests” tests.
Many customers were being shunted into high-risk property investments by one-stop shops, which typically involve real estate agents, developers, mortgage brokers, accountants and financial advisers.
The regulatory crackdown also comes as property investment becomes a more risky venture, with house prices softening around the country.
Meanwhile, borrowing through SMSFs for property has become a national sport. The most recent figures from the Australian Taxation Office reveal the number of DIY super funds that have borrowed from banks to invest in property has doubled over the past five years to more than 50,000 accounts.
Now, almost one in 10 SMSF owners has accessed limited recourse borrowing arrangements, which are mostly used to fund property investments.
SMSF borrowing for property has ballooned from $2.5 billion in 2012 to more than $25bn last year. Although the total rate of borrowing does not have analysts worried yet, the high gearing of individual funds that have bought investment property leaves thousands of SMSFs vulnerable to a housing downturn.
In his 2014 financial system inquiry, former banker David Murray recommended banning SMSFs from borrowing to invest in property.
It was the only one of 44 recommendations that the then-Turnbull government ignored.
By Michael Roddan (Michael Roddan is a business reporter covering banking, insurance, superannuation, financial services and regulation.)
The Australian Business Review
19 September 2018