SMSFs & Property Investments

It has been suggested by the RBA that super gearing by SMSFs may be overheating the residential property market.  Whether this suggestion is pre-justifying any future restriction or the closure of limited recourse borrowing for SMSFs, which may arise from the previously proposed review of limited recourse borrowing, is not known.

The suggestion that limited recourse borrowing by SMSFs can overheat the market cannot be taken seriously.  The prime influences on residential property prices are State and Local Governments which restrict supply of land, the RBA which determines the base interest rates for banks, the Federal Government which determines demand for residential land, the banks which influence the capacity of buyers to bid up prices (by reducing standards and lending more) and the Federal and State Governments which provide various subsidies (eg First Housing Grants) and incentives which effectively translate into buyers being able to afford to pay more for the available stock of land and houses.

The role of SMSFs in overheating the residential property market is insignificant by comparison.

The current Federal Government has not (as yet) applied its mind to whether a review of limited recourse borrowing should occur (as recommended by the Cooper Review).

Such a review is not a high priority for the Federal Government and any review may be two or more years away.  Consequently, those SMSF investors who are thinking about limited recourse borrowing may have two or so years to determine whether a gearing strategy is appropriate for them before this investment class is closed off or restricted.