The SMSFA said it welcomed the opportunity to provide the submission in response to the committee’s inquiry into Australia’s financial regulatory framework and home ownership to dispel some of the historical myths and misconceptions that have surrounded SMSF investment in residential property.
“These [myths] persist despite empirical data clearly illustrating that the concentration of SMSF investment in residential property, in relative terms, is very low,” it said.
“Further, the level of gearing in SMSFs under the limited recourse borrowing arrangements (LRBA) is another area surrounded by misinformation. The use of LRBAs is subject to stringent rules and regulatory oversight.
“Greater understanding of these two elements demonstrates why these are not factors of significant influence on the accessibility, and affordability of residential housing.”
The SMSFA said direct property investment allows for investment diversification and choice for SMSF trustees and reiterated that this is also an investment choice available to the larger APRA-regulated superannuation funds, although usually in large-scale projects rather than an individual house, unit or apartment.
“This is due to the differing size and scale of individual superannuation funds across the sector when we consider the whole of the superannuation ecosystem,” the submission said.
“SMSFs have an important role to play in the long-term retirement plans of many small business owners and families. As long-term investment vehicles, those that invest in residential property contribute to essential rental housing supply.”
The association stated that SMSF trustees invested in residential property will do so directly or may seek out programs such as those offered through Defence Housing Australia (DHA).
“DHA is a government business enterprise, for the purpose of ‘providing housing, and housing related services, to Australian Defence Force (ADF) members and their families to support Defence capability’,” the SMSFA said.
“The DHA has included SMSFs in its target market as a source of investment capital to fulfil their purpose. Inquiries and feedback from our members show that there is interest in the SMSF market to invest in NDIS housing.
“This interest is driven by a desire to provide for this segment as part of their social and ethical investment philosophies. It also provides stability for the fund, given the long-term tenancy requirements and the reliable, consistent income paid.”
The submission concluded that a recent Reserve Bank research paper noted that the housing crisis is fundamentally an issue of supply, explaining why it has failed to keep up with demand.
“This and the location-specific issues that arise in certain markets such as Sydney, must not be overlooked.”
You could say that a SMSF is preferred way to hold when it comes to the rental crisis. I would expect a higher percentage of properties owned by SMSFs would be rented out, than compared to those in Trusts, companies or individual names. Would be interesting to see the stats on this.