With recent legislative changes governing superannuation funds more investors are joining the ranks of an already large cohort of Self Managed Superannuation Fund operators.  Already, nearly one third of superannuation funds in Australia are self managed and with the recent dismal performance of both industry and retail funds it is likely that more Australians will investigate the alternatives in a bid to improve returns.  Issues that have recently emerged including fees and a lack of transparency have been underscored by the collective worst performance of super funds in 20 years as investors have watched more than $160 billion of superannuant’s funds disappear over the last 12 months.

The range of investment options for superannuation funds has now grown since changes to the Superannuation Industry Supervision (SIS) Act have made it possible for super funds, including self managed funds, to borrow for investment purposes.  This has made the opportunity of investing directly into real estate even more attractive than it was previously because leveraged returns in an asset class with significantly less risk than shares have now been made possible.  The new legislation imposes strict conditions on how borrowings can be arranged but provided that the assets meet the requirements for authorised investments, trustees of self managed super funds can now consider gearing as a strategy for their super fund using limited recourse loans.

With interest rates now at an all time low, property investment is more affordable and with the supply gap still increasing and failing to satisfy future demand, house prices are set to rise significantly over the medium to long term.  Data published by Rismark International indicates that despite the fall-out in financial markets, Australian property values have been fairly resilient, tapering by only 1.4 per cent.  However, with the significant disparity between the number of homes we need to produce annually which is currently estimated at 190,000 and the number currently being delivered of only 145,000 house prices are likely to increase.

These factors combined with the new changes to superannuation regulations, make property investment through self managed super funds a strategy well worth considering because of the potential for better returns through leveraging and better control over investments.

Investors should seek comprehensive financial planning advice on how to set up their own self managed superannuation funds and use them to buy property safely and easily, whilst complying with all the regulations.  You should check to see that the property is a compliant SMSF property before proceeding with the purchase.