Commercial Property, Direct Property

SMSFs flock to commercial property

SMSF trustees are showing a growing interest in commercial property, with two key factors driving the latest attraction, a specialist commercial property lender has revealed.

Thinktank chief executive Jonathan Street said trustees’ personal knowledge of the sector as owners/occupiers of business premises and the falling interest in the residential market, especially units, were the catalyst behind the demand.

“In our experience, many SMSF trustees, as owners of small to medium businesses, have direct involvement with commercial property and as such appreciate the investment opportunities this property sector offers – security, yield and capital gain,” Street said.

“At the same time, they are seeing an oversupply in the apartment market and low yields for residential property.

“While concerns are expressed by the regulators about ‘small-sized SMSFs’ investing in residential property, often through off-the-plan purchases, our experience suggests there is more informed interest in commercial property.”

In addition, he said the protection provided to business owners if things go wrong with the business is considerable with equity in owner-occupier premises protected from creditors or administrators, which is exactly how superannuation is supposed to work to secure people’s long-term financial security.

“Commercial property can play a significant role as part of a retirement planning strategy for many small business people,” he said.

Commenting on limited recourse borrowing arrangements (LRBA), he cautioned against the government taking any precipitous action.

“Often mentioned in any analysis of SMSF portfolios is the growth in LRBAs that have gone from a modest $2.5 billion in June 2012 to $31.4 billion in December 2017,” he said.

“While this rate of growth received a lot of attention in the Murray financial system inquiry, it largely ignored the small percentage that it represents of total SMSF assets.

“These LRBAs are secured mostly by direct property, both residential and non-residential, and of these assets it represents only 19.2 per cent.”

He said Thinktank’s expectation is that this approach to investment will continue to grow, in large part because of the attraction of long-term owner-occupied investment in business real property.

“The potential advantages of such an investment for retirement planning are significant in the current low-growth environment,” he noted.

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