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SMSFs advised to reduce property exposure

Self-managed super funds are taking on unnecessary risk with property assets, according to the director of an Australia-based investor risk profiler.

Paul Resnik of FinaMetrica said that while SMSF members are likely to be slightly more risk tolerant than most investors, data from the ATO suggests “they are taking on more risk than with which they are comfortable and more than they need to take financially”.

“For example, exposure to property assets could be as high as 30 per cent of average balances in SMSFs. That is peculiarly high, particularly as most Australians own one, two and sometimes three or more usually residential properties outside their SMSF,” he said.

“This is very strange when a property bubble is thought to exist in many Australians cities. It’s time to reduce property exposures.”

Mr Resnik’s comments come after a prominent industry lawyer said there is a “very real probability” that the end of the property bubble and a potential drop in unit rents could result in liquidity issues and “SMSF failures”.

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Peter Bobbin, managing principal of Argyle Lawyers, said a property devaluation is what often follows a stock market routing, so SMSFs that have bought in cyclical and volatile property market areas could see liquidity issues and therefore SMSF failures.

“If you have so much of your investment in what is a clearly, a massively illiquid asset such as real estate, and the debt to loan ratio is out of whack or is now inconsistent with what the lender requirements are, then I can see where a SMSF may have to engage in a forced sale,” he said.

“A forced sale may very well give rise to lower property realisations and it may simply end up in SMSF failure.”

[Related: Risk of SMSF lending issues is ‘remote’]

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>Paul Resnik of FinaMetrica said that while SMSF members are likely to be slightly more risk tolerant than most investors, data from the ATO suggests “they are taking on more risk than with which they are comfortable and more than they need to take financially”.

“For example, exposure to property assets could be as high as 30 per cent of average balances in SMSFs. That is peculiarly high, particularly as most Australians own one, two and sometimes three or more usually residential properties outside their SMSF,” he said.

“This is very strange when a property bubble is thought to exist in many Australians cities. It’s time to reduce property exposures.”

Mr Resnik’s comments come after a prominent industry lawyer said there is a “very real probability” that the end of the property bubble and a potential drop in unit rents could result in liquidity issues and “SMSF failures”.

Peter Bobbin, managing principal of Argyle Lawyers, said a property devaluation is what often follows a stock market routing, so SMSFs that have bought in cyclical and volatile property market areas could see liquidity issues and therefore SMSF failures.

“If you have so much of your investment in what is a clearly, a massively illiquid asset such as real estate, and the debt to loan ratio is out of whack or is now inconsistent with what the lender requirements are, then I can see where a SMSF may have to engage in a forced sale,” he said.

“A forced sale may very well give rise to lower property realisations and it may simply end up in SMSF failure.”

[Related: Risk of SMSF lending issues is ‘remote’]

SMSFs advised to reduce property exposure
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