The government’s decision to ban limited recourse borrowing arrangements (LRBA) in an SMSF for residential property belies the fact they are well regulated and have minimal impact on the affordability of housing, industry bodies representing property investors, real estate agents and mortgage brokers have stated.
Property Investment Professionals of Australia chair Cate Bakos said the move to ban new LRBAs was in opposition to the wider aims of mandatory retirement saving.
“Superannuation was always meant to enable Australians to retire with a better financial outlook than that of the old age pension,” Bakos noted.
“Our government’s willingness to trim the wings of those who are working hard to safely grow their wealth within an SMSF vehicle is disappointing.
“Since limited recourse lending was introduced in 2008, lending for property within SMSFs has always been far tighter and more restrictive than borrowing in personal names. It requires lawyer input and a signed-off strategy from a qualified Australian financial services licensee representative.
“It also represents a very small percentage, about 1 per cent, of the overall residential market, so this indeed feels like a strange demand from the Greens to secure their support for the [capital gains tax and negative gearing] reforms.
“It’s a surprising concession from the Labor government, given the federal Treasurer was emphatic that SMSF lending arrangements for residential property would remain unchanged in the lead-up to [yesterday’s] announcement.”
Real Estate Buyers Agents Association Australia vice-president Zoran Solano pointed out that since SMSF property investors represent a small proportion of the housing market, it was hard to argue they were a driver behind increasing house prices.
“Housing affordability will ultimately be improved by increasing housing supply, not simply reducing the number of buyers,” Solano noted.
“If SMSF residential property represents such a small percentage of Australia’s housing market, the real question isn’t whether SMSFs should be banned from borrowing. The real question is why we’re focusing on a fraction of the market while Australia’s housing supply challenges remain unresolved.”
Bakos and Solano were joined in their views by Mortgage and Finance Association of Australia policy and legal executive Naveen Ahluwalia, who stated mortgage and finance brokers were already seeing investor confidence weaken following the announcement.
“SMSFs play an important role in housing investment and restricting access to lending risks becoming another disincentive for Australians willing to invest in residential property,” Ahluwalia said.
“At a time of housing shortages and rental pressures, the focus should be on encouraging investment that increases housing supply, not discouraging it.”
Bakos observed there was a positive outcome from the ban in regards to SMSF property scheme promoters.
“The only silver lining is the elimination of negative outcomes for those who have either had poor advice or have advice from those who are not qualified to give financial advice,” she said.
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason