ASIC has expressed a lot of concern in the increased number of SMSFs investing in property, and has said on multiple occasions that it will be keeping a close watch on the issue.
However, SPAA senior manager, Technical & Policy, Jordan George says that there is a role for gearing in an SMSF – “but only where trustees have access to best-practice advice from an adviser who is licensed and properly qualified”.
Contrary to the talk of SMSF gearing being ‘out of control’, he says that it is still only used by a small minority of trustees.
“At June 2013, SMSF statistics show that only 0.5% of SMSF investments have limited recourse borrowing arrangements, and that this investment category has grown at less than 2% over the past four quarters to 30 June 2013. This level of involvement has been confirmed by one of the big four banks.”
Since restrictions were lifted in 2007, figures show a steady 3-4% growth in the asset class, said George. This is largely due to increases in property values.
There are a couple of reasons for the over-statement of the problem:
There is that element of poor advice and spruikers of property investment through gearing
The media has picked up on the issue and the discussion has raced ahead of actual investment numbers
Both ASIC and SPAA have publicly said that the area is of concern, but George says that the media will often pick up on highlights, and “it does stimulate the discussion ahead of where the investment levels are”.
“I think that the actual increasing scrutiny we’ve seen from the industry and regulators – that people have turned their attention to it – hopefully will drive bad advice and spruikers out of the market.”
New SMSF establishments are also over-stated according to George.
“Recent ATO SMSF statistics show steady but not excessive growth in new SMSFs. This is illustrative of the current health of the sector and there is little sign of a rush into SMSFs that has concerned some commentators.”