“I feel that this could be one of the biggest things in the last 120 years, the top five,” Birch told SMSF Adviser.
“The first one was the central bank’s creation in 1913. Then came the Gold Confiscation Act of 1933 where US citizens and businesses were required to deliver most of their privately held gold to the Federal Reserve in exchange for paper currency.
“In 1971 there was the crash of the Bretton Woods system and the creation of the petro-dollar, followed by the 1992 recession ‘we had to have’ which happened all over the world. And that was when they started pushing big time for the super fund.”
Birch said the LRBA ban is the fifth big change and has seen the removal of “people’s one little chance” that they had to take control over their life.
He continued that the decision by the Government, which will take effect from 10 August will leave many “mum and dad” investors in limbo, especially if they have already started the process of buying property off-the-plan with settlement dates months away.
“It makes me wonder if it is the Government or retail super fund lobbyist groups that are losing money from SMSFs. What happens if you just set up an SMSF last month? For things like negative gearing and capital gains tax, you have 12 months to make decisions and sort out your fund. But people who may have set up one just last month can’t now do what their financial adviser or accountant had set up,” he said.
“They have only 45 days. There are a few things that I see as massive risks for people. The Government said [the ban] is for the benefit of people, but what happens if someone bought a property last week, off the plan? I see brokers out there selling house and land packages, $1million packages with 12 months’ settlement. People put down a $100,000 deposit and they can’t settle on it until 2027 and now the Government changed the rules.”
Although there are now few banks offering LRBAs, Birch said he believes those that remain will quickly “close their books”.
“There are not many banks that do LRBA borrowing anymore. It’s mainly through private lenders, but they will be closing their books now. There are so many private lenders that when the bank started closing off that part of their business, all these private lenders popped up, but I also think there’s going to be a lot of the smaller private lenders who are going to lose business now,” he said.
He continued that although LRBAs are still available for commercial properties, often those properties are too risky or out of reach of the average investor.
“If the Government wanted to protect the mum and dad investors, they would have pushed the Loan to Value Ratio to 50 per cent, they wouldn’t have taken it away. When you think about where you go on your daily drive, how many shops do you see vacant for a year, two years, three years at a time? It’s a risky business buying commercial property,” he said.
“Every time I pick up the news, someone’s gone broke. Businesses are doing it tough and the Government has literally allowed SMSFs the only thing they can buy is the riskiest property investment out there being commercial property.”
He added that with residential property, some lenders have been offering 10 per cent deposits in super funds, while he believes they will now want up to 40 per cent for commercial property deposits.
“The Government said they are targeting wealthy investors. However, they’re not talking about the retail super funds that are in there buying build-to-rents and holding on to thousands of properties, businesses like BlackRock and Vanguard,” he said.
“LRBAs and SMSFs were the only vehicle that people had sometimes, and that’s being ripped from them. You’re forced to pay 12 per cent a year of income to a super fund you have no control over. It’s invested into who knows what. I think everyone’s been screwed.”
Great article. The government is not working for the ordinary person just trying to get by and enjoy life. The intention is to wipe out the ability of the middle class to be self-sufficient. Increase the number of people reliant on government handouts. No assets allowed. Promote renting/create the situation that increases renting and make everything available via subscription or other dependent method only. Force the selling of one’s (mum & dad investors only) properties (and eventually your one and only home – though as most property titles are now digitised, the ownership could easily be changed anyway). Eventually a universal basic income will probably be introduced, which will have conditions attached. Introduce work from home rights (which will be another nail in the coffin for small and medium sized businesses) and promote a shorter working week. Encourage older folk (those that were formally trying to enjoy their well-deserved retirement) to get back into the workforce. “You’re forced to pay 12 per cent a year of income to a super fund you have no control over. It’s invested into who knows what”. Yes, the mandatory employer Super Guarantee payments are not designed to help the average person achieve some sort of self-sufficiency later in life and less reliance on the pension. Cars will eventually be off the list of assets to have (unless you have an electric car, which will likely be based on a subscription model). The steps taken along the way all point to a controlled way of spending your life. But don’t worry – as the World Economic Forum famously once said, “you will own nothing, but you will be happy”.
All the ban will do is extend the shortfall in housing from 1.2 million to 2.5 in twelve months.
You can still invest in Commercial property with LRBA. I have 60 % of my property in Serviced or short stay apartments.
In an SMSF they can have an advantage as they be transferred to the benefices as an in species transfer.
Only draw back is they are affect by the economy, which under a labor government should be recked in six months and take another five years to recover.