Reserve Bank, government crackdown on self-managed super funds

Both the Reserve Bank and the government have hinted at a crackdown on the self-managed superannuation sector, with both entities saying they are concerned about the number of property investments being made in the industry.

Corporate regulator ASIC has been worried about the same thing for months – but the industry says there’s no reason to panic.

SMSF Professionals’ Association of Australia (SPAA) chief executive Andrea Slattery told SmartCompany the “problem” is slightly overblown.

“The numbers show investments in property within SMSFs break down to about 80% in commercial and 20% in residential,” she says.

“From the SPAA’s point of view we think the position has been overstated that SMSFs may be supporting growth there … those numbers are so small to have any ability to influence prices.”

In its latest Financial Stability Review, the RBA said legislative changes have meant SMSFs can borrow money to invest in property – which has led to an increase in this type of activity being spruiked by advisors.

“The sector therefore represents a vehicle for potentially speculative demand for property that did not exist in the past.”

The risk, it said, is that these investments could influence property prices.

“One risk of the increase in property investment by SMSFs is that at least some of it is a new source of demand that could potentially exacerbate property price cycles,” it said.

The warning is timely – it comes as property investors and analysts across the country are speculating about the prospects of a property bubble, given relaxed lending standards and historically low interest rates.

SMSFs have been permitted to borrow money to invest in property for the last six years.

Meanwhile, Assistant Treasurer Arthur Sinodinos has told the Australian Financial Review the new government wants to keep track of SMSFs to ensure they don’t have advantages over other funds.

“In the super space we need to make sure it’s a level playing field and that you get appropriate competition between the different funds, the industry funds, the self-managed super funds, and that’s the starting point,” he said.

SMSFs have become increasingly popular since the global financial crisis, as they’ve grown a reputation for being safer investments. SMSFs are widely used by business owners.

But Andrea Slattery says there isn’t much to worry about, emphasising the government is simply conducting a review it pledged before the election.

“The SPAA is not worried the government is concerned about a level playing field … they are interested in reviewing the financial services system in general.”

However, there has been some concern over property investments. The Australian Securities and Investments Commission has consistently said over the past year it will continue cracking down on dodgy SMSF advisors who promise returns in property.

Slattery says she is also concerned – but that the overall ratio of property investments doesn’t warrant panic.

“It’s important for people to be cautionary, but it’s only a small number of SMSFs which are taking out loans for property.

“We’ve been concerned about spruikers … but we note there has also been little take-up of all the hype around the spruikers, and so we encourage consumers to seek professional advice on any matters.”