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SPAA, ASMA reject SMSF property price role

The SMSF Professionals’ Association of Australia (SPAA) and Australian SMSF Members Association (ASMA) have refuted claims SMSF investments are inflating residential property prices.

SPAA used the current statistics surrounding SMSF asset holdings to support its argument.

“At June 30, property in SMSFs consisted mainly of non-residential property such as commercial property ($58 billion) compared with residential property ($17 billion) out of a total of $495 billion. At $17 billion, that’s 3.4 per cent of all SMSF assets,” SPAA technical and professional standards director Graeme Colley said.

“In addition, gearing is not the issue its critics allege. According to ATO statistics, geared property in SMSFs makes up less than one half of 1 per cent (0.4848 per cent) of their total investments.

“It would take a huge shift in investments to influence the real estate market compared with individual investors who use negative gearing to purchase property.”

The Reserve Bank of Australia (RBA) last week raised concerns about the risk of SMSFs pushing up Australian property prices. The RBA said changes to legislation in recent years had allowed SMSFs to borrow money to invest in property, saying the trend could inflate property prices.

ASMA disputed the effect SMSF investments were having on the residential sector using statistics it had gleaned from surveying its 3000 members.

The result of the study, “SMSF Report September 2013”, showed trustees only had an 18 per cent asset allocation to property compared to a 64 per cent allocation to equities and a further 18 per cent allocation to cash.

“ASMA’s report and recent data from the Australian Taxation Office reveal that comparatively few SMSF trustees are going into property. In fact, residential property investments by SMSFs have risen to only $20 billion since 2006,” ASMA director Simon Makeham said.

“Any potential bubble would occur in the share market, not property, given the volatility of the share market. We don’t often hear about the risk of being overexposed to shares and managed funds because the power brokers, who are funded by large financial institutions and industry-based super funds, manufacture and own most of this style of financial product.

“Given the size of the property market – $4.2 trillion in the residential property market – and in the interests of diversification, more people should be looking at investing in property from SMSFs, not less.”

Despite SPAA downplaying the use of gearing in SMSFs at the moment, the Institute of Chartered Accountants in Australia (ICAA) has encouraged a review into the current borrowing rules.

“We need to be looking at the policy framework relating to borrowing within SMSFs and whether, in light of unprecedented growth in the sector, it will continue to be appropriate,” ICAA head of superannuation Liz Westover said.

“The Cooper review found a review into borrowing in SMSFs was needed within two years. The government is right to look at undertaking such a review and the institute supports this as an early act of the new government.”

However, both professional associations were in agreement the current issues being raised about the SMSF sector showed trustees needed to seek professional advice to help them with the operation of their funds.

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