Concerns that outflows from SMSFs into property are creating a property bubble are overhyped, with no evidence of abnormal growth rates in SMSF property holdings, according to several industry experts.
The Reserve Bank of Australia last week released its Financial Stability Review for September 2013, drawing attention to the increased interest in limited recourse borrowing arrangements (LRBAs) to purchase property.
“Property holdings by SMSFs have increased and this type of investment strategy is being heavily promoted. The sector therefore represents a vehicle for potentially speculative demand for property that did not exist in the past,” the report stated.
“There are some signs that households are taking on more risk in their investment decisions, and the potential for a further increase in property gearing in SMSFs is a development that will be monitored closely by authorities for its implications both for risks to financial stability and consumer protection.”
This follows concerns expressed by the central bank in early September that gearing in SMSFs could potentially put household finances at risk.
These concerns prompted a response from Prime Minister Tony Abbott, who said he refused to speculate on any potential government action related to borrowing in SMSFs, and reaffirmed the Coalition’s commitment to making no adverse changes to superannuation.
Industry experts have since hit out at claims that borrowing in SMSFs is out of control or adversely affecting the Australian property market, with statistics indicating geared property in SMSFs makes up less than one half of one per cent of their total investments.
“It would take a huge shift in investments to influence the real estate market compared with individual investors who use negative gearing to purchase property,” said Graeme Colley, director of technical and professional standards at the SMSF Professionals’ Association of Australia
The SMSF Academy’s Aaron Dunn has also said the “total hysteria” with LRBAs has been taken out of context, with no evidence of abnormal growth rates in residential or commercial property against the overall growth of total assets within the sector.
“There probably needs to be a greater understanding of the ‘hype’ in property and actual ‘action’ taken by trustees,” Mr Dunn said.
“Much of the commentary in recent times appears inflammatory towards what is a well-functioning SMSF sector and doesn’t put into context the facts around the supposed boom of property within SMSFs.”
In addition, Charter Hall chief executive Richard Stacker told SMSF Adviser that SMSF trustees are generally managing their property investments appropriately, and that any further regulation would not be ideal.
“People are potentially speculating SMFSs are what’s driving the market at the moment, but without necessarily all the [appropriate] data,” Mr Stacker added.
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