Self Managed Super Funds Create Investor Surge

John McGrath

Real Estate Expert

australian-moneyInterest rates at a record low, rental yields are high and there’s good buying available despite the market having clearly moved off the bottom of the cycle. We’ve just had a change in federal government and the resulting shift in confidence will undoubtedly propel the property market further forward.

All in all, conditions are great for investors today and we’re seeing strong activity in many parts of the country.

But the leader of the pack is NSW, where 49.5% of home loans organised last month by Australia’s largest mortgage broker, AFG, were for investors. That’s the highest level of investor activity AFG has ever recorded in any state since it started its index in 2004.

So, what’s going on here? Sure, finance is cheap and rents are high – but that’s happened before. Why is investor activity at such a peak today?

No doubt, a big part of today’s investment surge is the advent of self managed super funds (SMSFs) and the ability to borrow money to buy property through super. Australians have been allowed to manage their own super since 1999; but we’ve only been able to borrow money to buy real estate through super since 2007.

Being able to borrow changed everything, and while a number of go-getters were quick to act, it’s taken the broader community a number of years to get comfortable with the idea.

Today, we’re pretty comfortable, with 1 in 25 Australians* now looking after their own super. This has created a strong flow-on effect in the property market, with many SMSF buyers keen to buy now before the next boom. The Tax Office reports a 23% surge in the amount of money invested in residential property via SMSFs over the past two years alone.

SMSF investors are having an impact across a broader range of price brackets than traditional investors. Generally speaking, traditional property investors tend to buy one or two bedroom apartments, mainly due to affordability. However, after many years of working, most super fund investors have bigger than average deposits and can therefore buy larger homes or properties in better locations to maximise their capital gains.

In 2012, SMSF buyers were given more options when the old rule prohibiting renovations to properties held in super was overturned. Today, SMSF investors are allowed to renovate their properties as long as they don’t use borrowed funds to do it. This change has allowed investors to generate more wealth by purchasing original homes, renovating them to build new equity and leasing them for a higher amount. Nice play.

Here’s another interesting trend. While younger SMSF investors are focused purely on investment, many older investors are focused on buying a future retirement home. This can be a good strategy when you’re five or ten years off retirement and you already know where you’d like to retire. Buy now, earn some rental income and move in later!

Successful property investing means taking advantage of opportunities. Some opportunities are individually earned – such as saving hard to build a deposit; while others are available to everyone – such as new laws and government grants. Being able to borrow and buy property through super is a phenomenal opportunity; and because it’s open to pretty much everyone, the impact on our property market is only going to get stronger.

*Estimate based on ABS & APRA data

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