SMSF trustees find it more attractive to hold investment property outside their fund due to two key benefits, according to a new analysis from Class.
Presented on the second day of the SMSF Association 2017 National Conference in Melbourne today, the “December SMSF Benchmark Report” for the quarter compiled data surrounding based on an analysis of 125,000 SMSFs administered on Class Super.
The findings revealed a preference for SMSF trustees to hold property outside an SMSF given the favourable negative gearing tax breaks as well as the restriction on SMSFs using equity in one property as collateral for another.
Class chief executive Kevin Bungard said the report was telling in terms of the trajectory that residential property had taken and the misconceptions surrounding the preferences of SMSF investors.
“What we decided was to have a look at that [exposure to direct property] in two aspects: one was to look at which funds are holding the property and the other was to compare that to the broader market,” Bungard said.
“Property is always a fascinating discussion with SMSF trustees but SMSF property purchases are just too small a part of the market to be having a big impact.”
He said that other investors, who formed 22 per cent of the market, were more likely to be having an impact on property prices than SMSF investors.
The report found that less than 1 per cent of residential properties in Australia were owned by SMSFs, compared to 22 per cent that were owned by non-SMSF investors and the 68 per cent that belonged to owner occupiers.
The remaining 5 per cent were held by public housing and 4 per cent was categorised as “other”.
It also found that the value of residential property in all SMSFs surveyed – both direct and indirect holdings – represented a total of $64 billion of the $6.7 trillion residential property market.
Bungard noted that the difference in investment preferences was also significantly reflected in the average size of the SMSFs that held direct property.
Those that had just residential property were valued at $1.2 million on average, compared to $1.9 million for SMSFs with just commercial property and $3 million for SMSFs that contained both.
“These figures are worthy of further discussion and analysis but we should not simply conclude that the members of these SMSFs with direct property are overexposed to this asset class,” Bungard said.
“Many of the members of these funds would have investments outside of their SMSF as well, so you would need to look at the totality of their wealth to be able to draw conclusions about the risks they are taking.”