SMSFs investing in residential housing have not been a market mover in the property sector, and this portrayal was just one example of how the SMSF sector is being “unfairly targeted”, according to the SMSF Association.
SMSF Association chief executive John Maroney said the growth in Sydney and Melbourne property markets had led to misleading comments that SMSF investment in residential property had been a major factor fuelling prices, especially because these funds could access debt via limited recourse borrowing arrangements (LRBA).
Maroney cited critics, who have said SMSF borrowings grew 50 times, from $497 million in June 2009 to $25.4 billion by June 2016, with more than 90 per cent of it related to property.
“What they fail to add is that LRBAs still only make up 4 per cent of SMSF assets at $25.4 billion, that they started from a small base in 2009, and a change in the way the ATO reported LRBA statistics in 2013, when the figure was revised from $2.6 billion to $8.3 billion, has distorted the statistical analysis,” he said.
According to the industry body leader, critics have also pointed to the fact in the five years to 30 June 2016, SMSFs with borrowings increased from 4 per cent to 9 per cent, and the average amount borrowed also rose 4 per cent from $356,000 to $372,000.
“This has taken LRBA analysis out of context. The fact is only 6.92 per cent of SMSFs have LRBA borrowings, and of this percentage only 5.97 per cent relate to Australian property,” Maroney said.
He quoted the most recent ATO annual statistics to 30 June 2016, which show SMSFs hold $25.4 billion in LRBAs, with these financial instruments mainly being used to invest in residential and non-residential property in an almost 50-50 split.
“That estimated $12 billion where SMSFs have used LRBAs to invest in residential housing has to be put in the context of a $6.05 trillion housing market as of June 2016,” he said.
“In other words, LRBAs comprise only 0.2 per cent of the housing market – hardly a figure to shake the market.”
He added previous SMSF annual returns that served predominantly as regulatory tools and were limited in the data gathered were the basis for the ATO figures being used.
Better information on LRBAs could be sourced from the 2017 SMSF annual return encompassing more granular information about LRBA investments within SMSFs.
However, he stressed the association’s stance in support of ASIC’s efforts to eradicate any unlicensed and unethical marketing behaviour, such as “unscrupulous spruikers” using LRBAs to promote SMSF property investment.