In recent weeks, calls for borrowing in super to become further constrained have intensified in light of concerns about the heated Australian property market that continue to be raised by the Reserve Bank.
Assistant governor Malcolm Edey told the federal government’s Inquiry into Affordable Housing last week there was growing concern about increasing speculative activity and growing investor borrowing.
However, the future of borrowing in SMSFs is likely to remain in the hands of the Financial System Inquiry, Macquarie Bank’s executive director David Shirlow told SMSF Adviser.
“In a way, there’s a bunch of issues on borrowing that are bubbling along quite independently of anything the RBA might be concerned about,” Mr Shirlow said.
Mr Shirlow noted that the 2010 Cooper Review recommended introducing further consumer protection measures in relation to borrowing in superannuation, which has been left untouched for “quite some time”.
“There’s a big question mark over where the government’s at in terms of whether it wants to introduce those sorts of consumer protections,” he said.
Mr Shirlow also said the Cooper Review recommended an introduction of Corporations Act rules to require certain licensing standards for those providing advice on LRBAs and related products.
“Your next question might be what’s a limited recourse borrowing product? Is it the loan or is it the investment? And that’s where it all started to come unstuck, because there was some real difficulty in defining what the product is and who’s the product issuer.”
Mr Shirlow has previously suggested changes to SMSF borrowing are on the cards following the Financial System Inquiry.
“Murray gives us a strong indication that the whole thing is on the table. When you get to borrowing in super [in the FSI’s interim report] the tone changes. It’s quite assertive. I think it’s quite clear that the Murray Inquiry could well recommend a complete ban on borrowing,” Mr Shirlow said.
“If the Murray Inquiry does take a firm line on borrowing, then the government could either adopt that firm line or, at the very least, I’d suggest we’re looking at some really significant constraints to address those sorts of concerns.”
Government has for ever allowed 2nd level of borrowing for SMSF in the form of investments in a geared product – may it be a geared managed fund, a listed company with liabilities or a geared unrelated syndicate via some sort of a unit structure.
By removing direct borrowing, trustees will find avenues to satisfy their need to gear in residential property market and products are already in the market in readiness, should direct gearing be chopped.
Where does this crap come from? Borrowing in Super is not adding to the “Heated Market” it is already fairly limited. the real issue is that there are unqualified people setting up lending in SMSFs that have no idea of the construction of a well balanced SMSF investment structure nor do they care so long as they do the loan and buy the house through them. THIS is what needs to be controlled NOT taking the tool away simply the persons who use it incorrectly! When when when are the people that make these decisions going to start listening to the bodies that are all too aware of the scams and overpricing of this very profitable way of investing your superannuation. It is complex and needs to be to keep the scammers out! I am nearly at the end of my career and in 27 years in this industry I have never felt that I want to leave BUT I am so sick of the regulation that does nothing to stop the scammers and breaks the honest man with mountains of paper and administration.