The Reserve Bank of Australia has stated that SMSFs are one of the key developments in superannuation that “bear close monitoring”.
In its submission to the Financial System Inquiry (FSI), the RBA stated that as SMSFs increase in importance within the superannuation sector, their ability to leverage raises concerns about SMSF members being exposed to greater financial risks “than they understand they are taking”.
“To the extent that banks are lending to SMSFs, they appear to be managing the potential risks of limited recourse borrowing arrangements by their frequent requirements for personal guarantees from SMSF members, minimum fund net asset requirements, and lower maximum loan-to-valuation ratios than often imposed on their other property lending,” the RBA also stated.
Since 2007, SMSFs have been permitted to borrow and purchase an asset under limited recourse conditions, increasing the accessibility and attractiveness of property investment via an SMSF, the RBA said.
“At least some of the increase in property investment by SMSFs is a new source of demand that could potentially exacerbate property price cycles,” the RBA added.
Late last year, the RBA suggested that action might be needed to take the heat out of the property sector, with concerns that outflows from SMSFs into property are creating a property bubble.
“One risk of the increase in property investment by SMSFs is that at least some of it is a new source of demand that could potentially exacerbate property price cycles,” the RBA stated in its Financial Stability Review for September 2013.
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