Property back in the picture for SMSFs

Property investments have once again taken a leading role among Australia’s self directed investors.
Property investments have once again taken a leading role among Australia’s self directed investors.

Property investments have once again taken a leading role among Australia’s self directed investors as a brace of reports released this week shows self managed superannuation funds holding more assets in bricks and mortar or planning to do so in the near future.

The latest quarterly bulletin on SMSF activity from the tax office reveals DIY investors have lifted their assets in both residential and commercial property.

Over the 12 months to June 2020, residential property assets held by SMSFs rose by around 11 per cent to a combined total of $39bn, and commercial property assets rose by about 9 per cent to a combined total of $73bn.

In a related item, the participation in borrowing inside super funds is also on the increase as SMSFs allotted around 10 per cent more to Limited Recourse Borrowing Arrangements over the period. LRBAs are invariably used to finance property purchases.

In contrast, allocations to listed shares were down slightly over the term, though the drop might partly reflect the reduction in capital values some funds would have endured in the year to June 2020.

The amount allocated to overseas shares was also down over the term, suggesting a much vaunted move towards greater diversification away from the local exchange by independent investors is far from complete.

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As the Australian Taxation Office figures showed the “actual” figures for property allocation, a private survey from the online finance information platform Money.com.au concentrates on forecasts for the sector with 41 per cent of the survey respondents suggesting they would consider investing in property in a self managed super fund.

In total, 42 per cent of Australians thought property was the best avenue for long-term return investments compared with 32 per cent opting for shares.

The increasing dependence on property among SMSFs comes as the outlook for residential property is improving.

The major banks recently revised their estimates for the extent of the downturn which has been taking place in the local market. Banks had forecast a top to bottom fall in national house prices of 10 per cent or more, but the figure is now closer to a cumulative fall of around 5 per cent.

As investors look positively on property once again, there were some signs the miserable returns available on cash and term deposits are finally beginning to influence behaviour among SMSFs as the cash holdings dropped across the board over the past 12 months.

In what may be a relief to the Australian Taxation Office, not to mention the Reserve Bank of Australia, the level of SMSF assets in cryptocurrency also fell – from $142m to $137m.

In terms of overall trends, the latest ATO figures also confirm a well reported rebound in SMSF numbers as the share market crash in March spurred a renewed interest in direct management of investments by private investors.

The total number of members in SMSFs has now topped 1.1 million as new establishments hit 18,540 over the past year – the best stretch for newly commenced funds since 2015.

Peter Burgess, the policy director of the SMSF Association welcomed the figures while suggesting the latest reforms for institutional super – which hinge on a new performance measure that will be made public on government websites – could add more value to SMSFs as members will finally be able to “benchmark” against more reliable annual returns from bigger funds.