- BRW Lists
Published 26 September 2013 08:19, Updated 27 September 2013 08:21
Assistant Treasurer Arthur Sinodinos is another with concerns about the SMSF property binge.
The Abbott government wants to create a “level playing field” between different types of retirement nest eggs following tax changes in 2007 that triggered an $80 billion surge into property by self-managed super funds.
Assistant Treasurer Arthur Sinodinos told The Australian Financial Review he wanted to make sure SMSFs did not have an advantage over industry and retail super funds.
Senator Sinodinos was responding to concerns raised by the Reserve Bank of Australia on Wednesday that the flow of money from self-managed superannuation accounts could overheat the housing market.
“What I noticed [is] that since the global financial crisis there has been an upsurge in interest through investing in self-managed super funds,” he said.
“On one level that is quite understandable, but on another we have to make sure that no matter what the vehicle is, it’s done in such a way that the ultimate objective is to preserve and maximise the savings for retirement.”
The Reserve Bank, the Australian Prudential Regulation Authority and other experts are worried by the big increase in property holdings by self-managed super funds over the past six years, partly driven by changes to superannuation law that made direct property investment more financially appealing and accessible. The change included exemptions from capital gains tax and fewer restrictions on borrowing against super accounts.
“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,” Mr Sinodinos said in his first interview since the new government was sworn in last week.
Property investments by self-managed super funds have risen to $80 billion from $20 billion since 2006, helped by a rule change that made property-related investments tax free for the over 60s. In 2007 self-managed funds became allowed to borrow to invest.
The Reserve Bank warned of a web of interests that involves SMSFs depositing cash in banks, and buying bank shares, and bank-owned advisers then supplying advice on where to invest. Banks would then lend to SMSFs to buy property.
“It could become a concentrated financial exposure between two parts of the financial system,” the RBA said.
Some consumers are being pushed into buying property through SMSFs without understanding the risks, it said.
The rise of SMSF property investment “raises consumer protection concerns in the event SMSF members are exposed to greater financial risks than they envisage,” it said.
While SMSF investors are rushing into property, with total holdings now worth $80 billion, the RBA surprisingly found that 77 per cent has been invested in commercial property compared with 23 per cent in housing.
It said this was largely due to a range of incentives for small businesses to hold property through an SMSF. Small businesses can transfer business property into an SMSF and receive a capital gains tax exemption of up to $500,000.