Trustees being caught out by ‘risky’ property contracts

Trustees being caught out by ‘risky’ property contracts

SMSF trustees have been urged to carefully assess contracts for property purchases, with some trustees getting caught out by risky contracts as loan conditions continue to tighten.

Thrive Investment Finance owner Samantha Bright says while tighter rules around lending has resulted in a reduction in the amount of risky properties purchased in general, off-the-plan purchases remain a problematic and concerning investment area.

In particular, in a bid to secure properties, trustees are entering into contracts with terms that can unconditionally lock them into the sale.

“One of the only big risks I’m seeing is still the off-the-plan inner city apartments. Do not buy off-the-plan in your super at all, that’s my biggest piece of advice,” Ms Bright said.

“Anything where you have to be unconditional and it’s not finished is not worth it, it’s a huge risk.”

After SMSFs enter into these contracts, they sometimes fail to get finance because that lender no longer does SMSFs or their fund balance isn’t enough or the lending requirements have changed, Ms Bright said.

“Just because you can get a loan today for your fund doesn’t mean that when your property is finished in six months, that loan is still available.”

Ms Bright also warned trustees to avoid areas where the local economy is heavily based on one particular industry.

“It’s that same old risk profiling with property. If there’s only one industry in a town, whether it be mining or agriculture, of course it’s going to present a higher risk. There’s less of that now [however] because lenders just won’t give money for those types of properties in super.

“The rules are the same in super as outside, if not you should be more conservative with your risk and you know that what presents as a riskier property takes longer to sell in areas that are reliant on one particular industry or where there’s an oversupply.”

 

Trustees being caught out by ‘risky’ property contracts
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