SMSF property loans “a high-risk endeavour”

19 July 2018
| By Hannah |
image
image
expand image

As Westpac announces it won’t offer self-managed superannuation funds (SMSFs) loans for new consumer or business lending anymore, RiskWise Property Research’s chief executive, Doron Peleg, has warned that “buying property with your superannuation is an accident waiting to happen”.

The bank cited wanting to streamline processes by removing the product both from its own offerings and that of its subsidiaries, the Bank of Melbourne, St George Bank and BankSA as its reasoning for the change.

Peleg, however, believed that “the real reason is that offering SMSF loans … is beyond Westpac’s risk appetite, especially if retirees lose significant amounts of their pension due to failed property investment”.

“It really is a high‐risk endeavour, and, in fact, Labor will move to ban borrowing against SMSF if they are returned to power in the next Federal election,” he said.

Despite this, the popularity of using superannuation to feed into property lending was growing, with Industry Super Australia reporting a 200 per cent increase in limited recourse borrowing arrangements over the last few years.

Research by RiskWise also showed that off-the-plan properties were very popular with SMSFs. The company warned that such properties often carry a high level of risk due to potential oversupply.

It cautioned that this could lead to “squashed property values, high vacancy rates and a cooler market”, pointing to inner-city Brisbane as an example of where weakness in the market had led to high levels of risk for investors and therefore lower valuations and rising defaults on settlements.

“What this means is that many individuals fall into debt they can’t climb out of as their SMSF hits the ‘rock bottom’ known as a ‘property bust’,” Peleg said.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest developments in Super Review! Anytime, Anywhere!

Grant Banner

From my perspective, 40- 50% of people are likely going to be deeply unhappy about how long they actually live. ...

1 year 4 months ago
Kevin Gorman

Super director remuneration ...

1 year 4 months ago
Anthony Asher

No doubt true, but most of it is still because over 45’s have been upgrading their houses with 30 year mortgages. Money ...

1 year 4 months ago

Australia’s largest superannuation fund has confirmed all members who had funds stolen during the recent cyber fraud crime have been reimbursed. ...

4 days 12 hours ago

As institutional investors grapple with shifting sentiment towards US equities and fresh uncertainty surrounding tariffs, Australia’s Aware Super is sticking to a discipl...

4 days 13 hours ago

Market volatility continued to weigh on fund returns last month, with persistent uncertainty making it difficult to pinpoint how returns will fare in April. ...

4 days 13 hours ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND