SMSFs being “unfairly targeted” over residential property investment

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SMSFs have been unfairly targeted as being a ‘market mover’ in residential housing, 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),” he said.

Maroney said the estimated $12 billion of LRBAs that SMSFs have invested in residential property “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 said this “selective use of statistics” to portray SMSFs as a residential property ‘market mover’ is only one example of SMSFs being “unfairly targeted” when it comes to property investment.

This is seemingly in response to a recent attack on SMSFs by Industry Super Australia, which said the “surge” in LRBAs threatened financial stability and could be exacerbating the “boom-bust property cycle”.

Moroney stressed that the ATO statistics being used are complied from the SMSF Annual Return, which is a regulatory not a statistical tool, potentially limiting the quality of the data. The ATO itself warns about using its statistics to make performance comparisons.

“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,” he said.

“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.”

Maroney said the SMSF Association does not deny that LRBAs have become more widely used, but believes the sector is capable of using them responsibly to build retirement savings. The Association also fully supports ASIC cracking down on “unscrupulous spruikers”.

“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.”

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