LRBA take-up remains steady despite slowing growth
The growth in the use of limited recourse borrowing arrangements among SMSF investors remains steady despite not growing at the rate it used to, according to a commercial property lender.
Speaking to SMSF Adviser, Thinktank head of research Per Amundsen said that despite the growth of the LRBA market remaining relatively flat compared to a few years ago, that doesn’t mean there isn’t still a lot of activity in the space.
“It’s such a big pie that there’s enough activity in there that would keep people quite busy,” Mr Amundsen said.
“I don’t think you’re finding a shift or change that is taking place. I would describe it as a stable, steady market… and hopefully that will continue to be the case.”
Mr Amundsen said the current market conditions are more favourable compared to last year, when there was a federal election in May and Labor was planning to ban LRBAs as well as proposing franking credit policies that he said “were pretty threatening to SMSFs”.
“That has all gone by the board, and in general, I think it’s accepted,” he said.
“Some conferences I’ve been at where the ATO has participated, [most attendees] seem to understand there may be things that they think should be looked at within the structures of SMSFs, but generally, LRBAs seem to be here to stay.”
As for the current attractiveness of LRBAs to SMSF investors, Mr Amundsen said it starts with the particular asset allocation or the investment that the members of the SMSF and the trustees are looking for.
“For some people, in fact, you’d say a majority of SMSFs, cash and equities are what they want to do. Unfortunately, in the low-yielding environment, cash is not that great an investment, but it makes up about 50 per cent of the total assets that SMSFs hold,” Mr Amundsen said.
“Not far behind that would be equities, and those work out great sometimes and over the last few days you’ll find that the volatility can be high, but it’s still a favourite asset class for SMSFs.”
However, Mr Amundsen said that property still has a way to go to catch up with cash and equities as favoured asset classes for SMSFs, noting that part of that has to do with the size of the asset.
For example, he said that to invest in a share or buy a term deposit, SMSFs can invest maybe $10,000, $20,000 or $100,000, but for property that figure would be much higher.
“That usually is what drives you then to consider, do I need to gear this investment and how can I borrow in this vehicle?” he said.
“SMSFs are highly regulated and there are a lot of twists and turns to them. You need good advice. You need a good legal team working with you, so there’s an added complexity, but the people who like property as an investment class, it seems to be a good way to go.”
Adrian Flores is the deputy editor of SMSF Adviser. Before that, he was the features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.