SMSF funds: Clamour to curb access to geared property grows

For self-managed funds, the window of opportunity to have geared property may not be open forever.

Investors have many reasons for increasing their superannuation exposure to property, but perhaps the outstanding reason is the sense that the window of opportunity may not be open forever.

In the recent financial inquiry led by David Murray, it was suggested the DIY funds (self-managed super funds) should no longer be allowed to have geared property — in other words funds should not be allowed to borrow for property investment.

DIY funds had always been allowed to hold residential property if it was owned outright, but not if it was mortgaged. The rules allowing a DIY to borrow to buy property were only introduced initially in 2007.

Though the current regime in Canberra chose to ignore Murray’s advice, future governments may have a change of heart.

Ironically, though there is resistance in Canberra to allowing leveraged property, DIY funds can at any time invest in leveraged property trusts or other highly geared products such as hedge funds.

Nor do the present rules make it easy for property investors with a firm ruling that Limited Recourse Borrowing Arrangements must be made for each individual property.

Still, DIY fund investors who made the move into property — especially in the cities of Sydney and Melbourne — may well have enjoyed a better asset price appreciation than if the same funds were invested in the S&P/ASX 200, which has
been drifting for almost three years in a relatively narrow range.