Powered by MOMENTUM MEDIA
subscribe to our newsletter

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”.

Advertisement
Advertisement

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’]

PROMOTED CONTENT


>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
mortgagebusiness

Latest News

The big four bank has confirmed that it is rolling out a new program of work to increase the speed in which it provides unconditional approv...

The ASBFEO has called on government to fund a revenue-contingent loan scheme for SMEs to help them manage cash flow once support measures en...

The fintech’s debit card and pay facilities will come offline today following the neobank’s decision to exit the banking business. ...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: A new mortgage lender enters the fray

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.