Pitcher Partners managing director Michael Minter said while the SMSF lending space has faced much tighter lending controls this year, particularly following the royal commission, the idea of using super to buy property within a super fund remains appealing to SMSFs from generation X and Y.
This comes despite the latest data from APRA showing that investor home loan approvals dropped by 12.4 per cent over the quarter, representing 31.1 per cent of new home loan approvals – a total of $117.5 billion.
Interest-only loans now represent 16.2 per cent of new home loan approvals, a 54.9 per cent dive in the last quarter.
While there are important risks to consider, Mr Minter said younger SMSF trustees are still attracted to holding property in super for some of the benefits associated with it, including a lower tax rate on SMSF income, a lower capital gain tax rate and tax deductions such as insurance premiums.
Mr Minter said there are two main types of generation X and Y investors.
“The first is the business owner who currently paid rent, but would prefer to buy a property, and have the rent paid into their super fund. The second wants to build their super balance through strategic property investments by borrowing and gearing,” he said.
He warned that there are important considerations that need to be made before undertaking property investments in super or an SMSF, however.
Practitioners, for example, he said, need to review their client’s financial goals current financial situation and tax obligations.
“Compare their current super fund against running an SMSF. Investment carries risk and the client must decide what level of risk you are comfortable with,” he said.
He also noted that $200,000 is the preferable amount to start an SMSF.
“Before making any property investment, the client should establish a set of investment criteria that they are comfortable with, including whether it’s residential or commercial, local or elsewhere or big or a mix of smaller properties. But whichever approach you adopt, research the options and the market thoroughly,” he said.