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The latest SMSF quarterly statistical report released by the Australian Taxation Office (ATO) revealed that SMSF asset allocation for residential property increased by 26.4 per cent to $55.2 billion between the June quarter of 2021 and 2024.
Additionally, asset allocation for non-residential property grew 25 per cent during this same period to $102 billion.
Shore Finance CEO Theo Chambers has provided a “twofold” reason for this surge in Aussies using SMSF to invest in the property market.
According to Chambers, the increased accessibility in SMSF lending has been prevalent, with more lenders offering the product on more favourable terms.
“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,” Chambers said.
Moreover, there are lenders that are considering future superannuation contributions when assessing someone’s borrowing capacity and not just historical contributions, Chambers said, which can make a big difference to self-employed borrowers as mortgage serviceability is not just limited by past contributions.
The underperformance of traditional super was cited as the second reason by Chambers to explain the spike in SMSF property investing over the last three years.
He said that many individuals were not satisfied with the returns from their current superannuation funds and later discovered they can easily set up an SMSF to manage themselves.
“Investors are seeing the poor performance of their super and chasing bigger returns. 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,” Chambers said.
Highlighting the changing perceptions of SMSFs, Chambers further said: “People previously felt they needed $500,000 or more to justify an SMSF, however now with lower set-up costs from competitive accountants and financial planners, individuals can consider SMSFs from an individual or combined balance between spousal partners of $150,000 to $200,000.”
Furthermore, using SMSFs for property purchases also yields other benefits, notably that buyers are not limited to residential property. According to Chambers, members can purchase commercial property (so long as it meets the ATO’s rules) to rent back to their own business, meaning the business pays rent directly into the investor’s SMSF.
He noted the growing market for commercial property syndicates among SMSF members, where members will put money into owning a portion of a commercial property, for example, a large asset like a shopping centre.
“The other benefit of limited-recourse borrowing via an SMSF is that it doesn’t affect your serviceability for traditional borrowing outside your super,” he said.
That means someone can buy an investment property through their SMSF, without it damaging their ability to qualify for another home loan outside their super, which they might use to upgrade their family home or buy an investment property.
“This structure has become an essential part of the appeal for investors who want to grow their asset base in a way that doesn’t interfere with their personal financial goals,” he said.
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