LRBAs hold their ground

LRBAs SMSF portfolios

Limited recourse borrowing arrangements have held their ground within the portfolios of SMSFs, but are still less than 1 per cent of all residential property assets.

The use of limited recourse borrowing arrangements (LRBAs) by in SMSF portfolios has remained steady, but the percentage of assets covered by the arrangements has fallen marginally, according to the latest SMSF sector data released by the ATO.

According to the regulator’s statistical overview of the SMSF sector for 2018/19, the number of SMSFs reporting LRBAs in their portfolios was 10.8 per cent, a marginal increase from 10.7 per cent in 2017/18, and LRBAs made up 6.1 per cent ($45.9 billion) of all SMSF assets, down from 6.5 per cent ($46 billion) in 2017/18.

Of the assets held under LRBAs, 96 per cent ($41.1 billion) were related to real property and split between residential ($23.8 billion or 52 per cent) and non-residential real property ($20.3 billion or 44 per cent), with the remaining 4 per cent used for overseas real property and Australian and international shares.

LRBAs also represented 94 per cent of the total value of borrowings reported by SMSFs, which was $22.9 billion at 30 June 2019, with the average value of borrowings for LRBA purposes at $354,000, down from $370,000 in 2017/18.

The ATO noted that while the total investment in real property by SMSFs had grown to $147.2 billion in 2018/19, up from $105.3 billion in 2014/15, and investment in residential property had increased by 55 per from $23.1 billion in 2014/15 to $35.8 billion in 2018/19, the latter was still a very small part of total residential real estate holdings.

“The growth in the value of property held by SMSFs is attributed to both new investment and the rising value of Australian real property,” it stated on its website.

“Overall, SMSF investment in residential real property, both directly and through LRBAs, was $59.6 billion in 2018/19, representing 0.9 per cent of the total Australian residential property market of $6,610.6 billion.”

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