Unlisted property can boost SMSF diversification

Unlisted property can boost SMSF diversification

SMSFs seeking more diverse investments can use unlisted property funds to gain access to a range of property asset classes, a property funds industry body says.

Trustees should consider using unlisted property funds to ensure their SMSFs are not too heavily invested in just one or two assets, according to a property funds industry body.

Pointing to the ATO’s recent review of SMSFs using limited recourse borrowing arrangements (LRBA), the Property Funds Association (PFA) cited “concentration risk” due to a lack of diversification among SMSFs as a key issue.

PFA chief executive Paul Healy said SMSFs could benefit from unlisted funds as they were a way of accessing diverse property asset classes such as office property and industrial property, as well as newer alternatives such as healthcare.

“Many SMSFs are putting their eggs into one basket property-wise, which is a missed opportunity when you consider the huge property investment universe available via unlisted funds,” Healy said.

“Unlisted funds provide access to property assets which are beyond the reach of most direct investors, including commercial and industrial and overseas assets, which have performed strongly.

“SMSFs using unlisted property funds also benefit from increased diversification from being exposed to several different properties and strategies.”

He also said unlisted property funds had delivered strong returns due to an “ability to combine capital growth with income from rents, while showing lower volatility compared with equities and listed property trusts”.

In addition, the PFA highlighted research by key industry bodies, including the PFA and Property Council of Australia, that revealed unlisted property delivered total returns of 22 per cent over the five years to 31 December 2018.

Australian equities delivered 5.6 per cent a year for the same period, it said.

In September, an SMSF technical expert said the ATO’s letters to SMSF trustees examining their investment strategies regarding diversification could potentially be seen as an attack on funds using LRBAs.

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