Theo Chambers, Shore Financial CEO, said the reason for this surge is twofold. First, lending has become more accessible with more favourable terms, and second, the underperformance of traditional super has seen many people who are dissatisfied with the returns from their current superannuation funds setting up an SMSF.
Chambers said according to the latest ATO quarterly statistical report, between the June quarters of 2021–2024, SMSF asset allocation for residential property grew 26.4 per cent to $55.2 billion. Asset allocation for non-residential property grew 25 per cent to $102 billion.
“Previously, obtaining SMSF property loans was challenging. Now, lenders are offering more competitive rates and terms, including higher loan-to-value ratios (LVRs) of up to 90 per cent,” he said.
“Additionally, some lenders are considering future superannuation contributions when assessing borrowing capacity, not just historical contributions. This makes a big difference to self-employed borrowers as your mortgage serviceability is not limited by your past contributions alone.”
Additionally, Chambers said many super funds haven’t met the ASX index as a benchmark for the past five to 10 years, with many not breaking even after management fees.
“Last year, the Australian Prudential Regulation Authority (APRA) called out some funds after an analysis found that one in five significantly had underperformed against APRA’s benchmarks. APRA also found evidence of unfair practices, including overcharging,” he said.
“Meanwhile, University of Adelaide research showed SMSFs routinely outperformed APRA-regulated funds, by around 4.1 percentage points in the 2021-22 financial year. This was the largest outperformance in the six years the research had been ongoing.”
Investors are seeing the poor performance of their super and chasing bigger returns, Chambers added.
“For many, the decision to turn to property within their SMSF is about both confidence in property’s growth potential and a lack of satisfaction with their super returns.”
Australians’ perceptions of the costs of SMSFs have also changed, and with lower setup costs individuals can consider SMSFs from an individual or combined balance between spousal partners of $150,000 to $200,000.
“Another key advantage of SMSF property investing is the principle of leveraged investing, which allows fund members to purchase property using their super to cover the deposit. This can amplify returns compared to investing the same amount in shares or managed funds,” Chambers said.
“While shares will outperform property in some years, SMSF investors using $200,000 in super to purchase a $1 million property are achieving capital growth on the $1 million, not just the $200,000.”
There is, Chambers said, a growing market for commercial property syndicates among SMSF members, and by putting money into syndicates, members of an SMSF can own a portion of a commercial property, which might include a large asset like a shopping centre.
