‘Boomer’ investment tactic helping Aussies crack the property market

A money tactic traditionally associated with rich boomers is gaining popularity among young Aussies, and it could be the secret to cracking the property market.

With interest rate hikes eating into many homebuyer’s borrowing power and the cost-of-living making saving more difficult, wannabe homeowners of all ages are looking at creative ways to get into property.

And there’s one often overlooked pathway to home ownership that’s traditionally been thought of as a strategy reserved for rich boomers that more and more young Aussies are getting in on, but surprisingly, few of us know the details.

A recent survey conducted by news.com.au and Pepper Money questioned more than 5000 Australians on their awareness about using superannuation to buy property.

While the vast majority of Aussies were at least aware of their super balance or had a retirement goal, only 5 per cent of respondents said they understood the financial and legal implications of using super to buy property.

Less than a quarter – only 22.3 per cent – answered that they knew the basics but were unfamiliar with the specifics of doing so, while 32 per cent had some understanding of the concept. A further 14 per cent were unaware it was even a possibility.

Even though it’s only a small number of Aussies who are aware of this option, Pepper Money chief executive Mario Rehayem says the demand among those in the know is growing.

“We’re seeing strong demand from Aussies investing in property using their superannuation balance to get onto the property ladder,” Mr Rehayem told news.com.au.

“Australians have a passion for property and a desire to take control of their investments.

“People are looking for different avenues to step onto, or up, the property ladder.”

Using super to save for a house deposit

Currently, there are two major pathways that use super to buy property in Australia.

The first, available to first home buyers, is the government’s First Home Super Saver scheme (FHSS).

The scheme, established in 2017, allows Aussies to make personal voluntary contributions into their super funds in order to help them save for a home.

Concessional contributions are taxed at only 15 per cent, which is usually less than the marginal income tax rate. Assessable FHSS amounts also benefit from a 30 per cent FHSS tax offset, meaning your deposit can build faster.

Under the scheme, you can withdraw up to $15,000 of your voluntary contributions from any one financial year, and a total of $50,000 across multiple years, plus the money’s associated earnings.

Using a self-managed super fund (SMSF) to invest in property

The second pathway from super to home ownership is self-managed super funds, in which with the help of an accountant and financial adviser, you can set up your own privately managed super fund and use the money to invest in the property market.

According to Mr Rehayem, Aussies’ desire to take control of their investments is driving growth in self-managed super funds (SMSFs).

“The value of assets managed via SMSF has already overtaken retail and public sector funds and is closing in on industry funds,” he said.

Of a total of $3.7 trillion in superannuation assets, the latest APRA data shows that SMSF hold 24.7 per cent.

“But despite the growing popularity, it still amazes me that the overwhelming majority of poll participants (95 per cent) say they lack adequate knowledge about using their superannuation to purchase property,” Mr Rehayem said.

“Around 15 per cent of the poll participants didn’t know that purchasing property using superannuation was even possible – which could be a missed opportunity for some.”

A money tactic traditionally associated with wealthy boomers is gaining popularity among young Aussies, and it could be the secret to cracking the property market.

For Tony Harrington, a tradie-turned-money-coach who built his empire while working and raising his three kids solo, it’s an option worth investigating for a substantial number of Aussies.

“I came in touch with self-managed super funds around five or six years ago,” says the property investment adviser, who has authored three books geared at helping tradies retire with money.

“A lot of people have started to realise that they’re going to get to retirement and they’re not going to have enough money to live on,” he says.

“With probably 97 per cent of the population, the game plan most people are following is this: Buy a house, have a couple of kids, take out a 30-year mortgage and hope like hell you’re going to have enough super when you retire.”

But, Mr Harrington says, that’s not the only strategy.

“With property, we can control the game, and we traditionally know what property is going to do,” he continues.

“Particularly for someone in their mid-50s, buying an investment property through a self-managed super fund started to sound like a good idea, because under the current rules and laws, when you do sell it, there’s no capital gains tax. It’s not a bad strategy for a lot of people who want to get their money out of the stock markets (where there’s a lot of volatility) and move it across into property, and not have to pay any capital gains tax if they get themselves a good purchase.”

Dipping into superannuation comes with risks, and policies and proposals by both sides of government around allowing access to super for buying property have been heavily criticised.

The biggest hurdle to this strategy, Mr Harrington says, is the heavy legal and admin burden of establishing and running a SMSF, as well as the differing advice in the industry.

“In a nutshell, my view is that it is very complicated to do,” Mr Harrington says.

“The set up process is very complicated, which is why it’s critical that you’ve got the right people on your team. You need a good financial planner and the right tax accountant and a mortgage broker who understands self-managed super fund structures.”

The current cost-of-living crisis has prompted many Aussies to press pause on their property dreams, with about one in four Aussies polled who don’t own a home (24.2 per cent) saying another rate rise would likely cause them to put off buying a home in the next 12 months.

But Mr Rehayem says many of these dejected property seekers may just be lacking awareness of their options.

“The future looks bright for SMSFs as more Australians take the reins of their own super funds,” he said.

“While there is sometimes an outdates image of SMSFs being held by wealthy boomers, ATO data shows it’s becoming more common for young people to be setting one up these days.”

There are also options for borrowers wishing to explore this option who may be worried they don’t have enough in their super with SMSF loans available, and borrowing through SMSF to invest in property is restricted by tight borrowing conditions.