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Investments, Property

SMSFs continue to invest in direct property

Despite reports of SMSF property allocations dropping, trustee demand for and investment in the asset class have continued via the fractional investing channel.

“Property allocations only appear to be dropping in the high balance fund end of the SMSF market, not across the board,” DomaCom head of sales and marketing Warren Gibson told selfmanagedsuper.

“SMSFs’ interest in property remains strong, at least in our world, because they can invest as much or as little as they need or want, thereby controlling their asset allocation in line with a strategy.

“And they have choice over what they invest in. If they are ‘socially minded’, they might like renewable energy, aged or child care, agriculture, affordable housing, et cetera.”

Gibson’s comments follow a recent survey on a sample of 2600 SMSFs that found trustees were reducing their exposure to property in their portfolios, reflecting wider trends in the property downturn in the Sydney and Melbourne markets.

He revealed the contrary was happening and SMSFs were investing in direct property via DomaCom’s fractional fund for a precise asset allocation in line with their strategy, and in properties and projects that interested them.

“Interesting, too, that the split is 30 per cent commercial and 70 per cent residential,” he noted.

“Through our fractional model, SMSFs can also access rural/farmland, renewable energy, affordable housing, leisure – hotels, resorts – aged care and childcare, in fact any property type. In many cases these property types offer a better return as well as greater diversification.”

The DomaCom fund can also accommodate debt, held by the sub-fund and not the investor, so that the tax benefits flow to the underlying investors, he said.

“This means that a SMSF can achieve leverage without setting up a limited recourse borrowing arrangement and a bare trust to administer it,” he said.

Crowdfunding to SMSFs can provide a great deal of development money for socially responsible investment targets while giving the SMSF a reasonable return, he said.

“Twenty-five thousand SMSFs – 4 per cent of the market – investing $5000 – less than 1 per cent of the average portfolio – could provide $125 million towards these targets,” he said.

“If we add debt at a reasonable loan-to-value ratio to remain positively geared, as required by our fund, then it doubles. If you think in these terms what the SMSF space can achieve with very little, imagine what the entire Australian superannuation system with $2.7 trillion could achieve.

“This is a big picture. I think people would be disposed towards a small percentage of their super going towards these goals, it just needs a model that can bring this to fruition and a will to do so by trustees and by government in supporting it.”

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