cobran20

AFR: DIY super funds rush to property

27 posts in this topic

Front page on the AFR today. Access is subscriber only. But it starts along the lines of:

Do-it-yourself superannuation funds are using cash stockpiled in the global financial crisis to buy properties in record numbers following the clarification of new laws that allow the funds to borrow to invest.

Also found elsewhere:

There is a growing trend for self-managed superannuation funds to invest in property. However, Arun Abey of ipac warns that it may heighten the risk of a property bubble developing. Residential properties are particularly popular with do-it-yourself (DIY) funds, but Jones Lang LaSalle's Anthony Bray says commercial properties that are fully leased are also attracting interest. Investing in property has tax advantages for super funds, while recent law reforms permit DIY funds to take out non-recourse loans for investment purposes.

Looks like the lemmings got burnt on the ASX two years ago are now diving into the next bubble.

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permit DIY funds to take out non-recourse loans for investment purposes

Does that mean what I think it does?

"It's different here we don't have non recourse loans!"

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no recourse? so theycan walk away and owe nothing out their personal income or assets, no bankruptcy?

f*ck me,m time to start my own smsf

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Does that mean what I think it does?

"It's different here we don't have non recourse loans!"

banks will only do it to quite low LVRs (like 60%) and require personal guarantees from fund beneficiaries. so in the event of default they can take the property and pursue the guarantors for personal assets. Se we don't really have non recourse loans

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no recourse? so theycan walk away and owe nothing out their personal income or assets, no bankruptcy?

f*ck me,m time to start my own smsf

no recourse to other assets in the superfund, but banks who lend to superfunds require personal guarantees from beneficiaries. so bank can go after personal assets, so in effect full recourse.

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Hmm, there is a hell of a lot of money in super, so I think it still has some potential to keep the bubble pumped for some time, especially if the govt tinkered with the rules and made it even easier to use your super to purchase property.

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no recourse to other assets in the superfund, but banks who lend to superfunds require personal guarantees from beneficiaries. so bank can go after personal assets, so in effect full recourse.

I suspected that much. Banks are not that stupid, especially with all the 'jingle mail' experience the US banks have been getting over the last couple of years.

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banks will only do it to quite low LVRs (like 60%) and require personal guarantees from fund beneficiaries. so in the event of default they can take the property and pursue the guarantors for personal assets. Se we don't really have non recourse loans

Bah take all the fun out of it don't you :)

Hmm, there is a hell of a lot of money in super, so I think it still has some potential to keep the bubble pumped for some time, especially if the govt tinkered with the rules and made it even easier to use your super to purchase property.

Yeah all the "new contrarians" that are seeing the mass media saying "well here comes the crash buddies" are going to against the tide and make a killing :)

If they are at 60 lvr I am not sure there are going to be an awful lot are there? 40% deposit and personal guarantee is a fair bit to stump up and, I assume, SMSF people tend to be doing the risk/reward analysis (otherwise they wouldn't go SMSF I expect).

I am accused of having too much faith in humanity on a regular basis though.

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Just playing devils advocate. :)

Plus, you could hardly call the mania for property we've had aver the last 10+ years terribly well analysed, the prospect of easy money seems to be quite effective at turning off the thinking bit of many peoples brains...

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Hmm, there is a hell of a lot of money in super, so I think it still has some potential to keep the bubble pumped for some time, especially if the govt tinkered with the rules and made it even easier to use your super to purchase property.

They have already now allowing you to LVR into it.

I did not realise you were allowed to do it at all, but this no recourse thing seems like a crock no doubt to ease peoples minds about losing all their super! Why can't you buy geared share funds then? Or lever up your super in any other asset other than property? Or can you do this now too? LVR into shares?

Stuff it can you buy options with your super or use it at the race track? Definitely it seems to me property has every advantage going for it so far as policies are concerned. It is as though every department of government has a KPI on house prices. I can picture the department of defence talking about buying a new style of tank and deciding in stead to buy residential housing in stead as it meets their KPI's objectives more strictly.

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They have already now allowing you to LVR into it.

I did not realise you were allowed to do it at all, but this no recourse thing seems like a crock no doubt to ease peoples minds about losing all their super! Why can't you buy geared share funds then? Or lever up your super in any other asset other than property? Or can you do this now too? LVR into shares?

Stuff it can you buy options with your super or use it at the race track? Definitely it seems to me property has every advantage going for it so far as policies are concerned. It is as though every department of government has a KPI on house prices. I can picture the department of defence talking about buying a new style of tank and deciding in stead to buy residential housing in stead as it meets their KPI's objectives more strictly.

super has always been able to buy geared funds or options. a smsf can borrow to buy any allowable asset so yes that includes shares etc. i'm not sure if banks lend to smsfs for anything but property though.

Edited by zaph

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super has always been able to buy geared funds or options. a smsf can borrow to buy any allowable asset so yes that includes shares etc. i'm not sure if banks lend to smsfs for anything but property though.

cheers,

I did not realise that? Too bad it looks like race horses are not an allowable asset. I have about enough to buy a reasonable quality thoroughbred in mine, and the 9% contributions would just about cover costs.

Be devastating if it got Hendra virus... I guess it would be the property equivalent of the government introducing broad based land tax.

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cheers,

I did not realise that? Too bad it looks like race horses are not an allowable asset. I have about enough to buy a reasonable quality thoroughbred in mine, and the 9% contributions would just about cover costs.

Be devastating if it got Hendra virus... I guess it would be the property equivalent of the government introducing broad based land tax.

smsfs are not allowed to run businesses - i imagine a racehorse would be disallowed under this rule. but i'm not 100% sure.

under conditions they can buy art and gold though. another rule is that the investment must be for retirement benefit and not the 'now' enjoyment of members. so you need to wear a blindfold when transferring that picasso you just purchased from the auction house to the vault.

i doubt many funds would borrow to buy anything except something as safe as houses (and probably couldn't get finance anyway). the low lvrs (bank requirement) means that they would undoubtedly be cash flow positive. now to make forumites blood boil - if the property is held and only sold in the 'pension' phase it's CGT free!

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smsfs are not allowed to run businesses - i imagine a racehorse would be disallowed under this rule. but i'm not 100% sure.

under conditions they can buy art and gold though. another rule is that the investment must be for retirement benefit and not the 'now' enjoyment of members. so you need to wear a blindfold when transferring that picasso you just purchased from the auction house to the vault.

i doubt many funds would borrow to buy anything except something as safe as houses (and probably couldn't get finance anyway). the low lvrs (bank requirement) means that they would undoubtedly be cash flow positive. now to make forumites blood boil - if the property is held and only sold in the 'pension' phase it's CGT free!

So if I was to buy another house to live in and sold this one to my SMSF at the same cost I bought it (which in my mind is a paper shuffle) and my SMSF (which I don't have) rented it out and blah blah blah then in some 50 years when I retire I could sell it CGT free?

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well we all did wonder where the money was comming from to fund the next bubble in houses. smsf is a part of that new money. i wondewr of people who run smsf are dumb enough to belive the hype, ie houses always go up.?

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So if I was to buy another house to live in and sold this one to my SMSF at the same cost I bought it (which in my mind is a paper shuffle) and my SMSF (which I don't have) rented it out and blah blah blah then in some 50 years when I retire I could sell it CGT free?

That would be like transferring to or out of a trust I would say. The CGT would be levied on its value not on what you deemed it was worth when you transferred it.

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if the property is held and only sold in the 'pension' phase it's CGT free!

Oh no way! Not even taxed at 15%? that is stuffed. It nearly makes our property at current prices doable into your super cause even if you lose for the next ten the ten after that are likely to track inflation!

I assume at least this applies to CG on shares too? But in a fund you pay the tax as you go, i.e. as it is revalued. I am suddenly thinking if you have really long term views on certain shares to buy them through your super fund too so you can sell them post retirement with no CGT.

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So if I was to buy another house to live in and sold this one to my SMSF at the same cost I bought it (which in my mind is a paper shuffle) and my SMSF (which I don't have) rented it out and blah blah blah then in some 50 years when I retire I could sell it CGT free?

yes#1&^+*123

# i'm not completely up to date with the minutiae of smsfs

& there are strict rules about funds doing business with their members, rock solid valuations would probably be required.

^ this offer is valid for only 5 minutes and you should consult the product disclosure statement and speak to a good accountant

+ if you wanted to pursue this strategy you would probably be better off to live where you are and by an ip within the fund

* you might be better to sell the property to the smsf at, or above market (if you can get a valuation) to simultaneously contribute to the fund and effectively rip money out of it.

1 you probably won't have to wait 50 years, you can transition to retirement early (that doesn't involve a wig and an oxford st performance, it just means you can start to draw down your super while you're grey but not quite retired)

2 the rules may change

3 the rules will definitely change

hope this messy statement clears things up

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That would be like transferring to or out of a trust I would say. The CGT would be levied on its value not on what you deemed it was worth when you transferred it.

TORs home is a ppor and not subject to cgt. TOR would therefore pay no cgt on selling.

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Oh no way! Not even taxed at 15%? that is stuffed. It nearly makes our property at current prices doable into your super cause even if you lose for the next ten the ten after that are likely to track inflation!

I assume at least this applies to CG on shares too? But in a fund you pay the tax as you go, i.e. as it is revalued. I am suddenly thinking if you have really long term views on certain shares to buy them through your super fund too so you can sell them post retirement with no CGT.

tax rules in a super fund don't differentiate between shares or property. you don't pay CG tax 'as you go' within a fund, just when it's sold. so yes if you have a really long term view of a share then purchased through a smsf will pay no CGT if sold in the pension phase.

all the things we've been discussing today make smsfs a good structure. the big risk is the rules will change, and that is a big risk imo.

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It is superb that there is another way to get money into property, surely there must be some other ways that other fools can lose their money as well.

If you can come up with some ways; see if you can leak it to the press, there maybe a possibility of a page 1 to 2 release to get the message out so everyone can put whatever they have into property and keep it going up.

Fantastic I love it! :laugh:

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#1&^+*123

and you just became my accountant of choice :)

Anyone that spends that much time qualifying anonymous internet posts has got to be good at actual real world stuff.

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I was 'approached' (read hard sell) very recently by a group which has latched onto this SMSF property investment thing. Selling properties in the backblocks of Qld at inflated prices. And they promise to be able to get your super out of anywhere.

My concern is that the usual two tier marketers and property scammers are coming out of the woodwork in droves now, latching on to this new rich source of capital to scam suckers with two tier pricing. I think it's a huge mistake on the part of whoever makes the super rules.

My argument to the guy was that he was asking me to put most or all of my super into one illiquid asset in the middle of nowhere, rather than a diversified risk pool. And why one physical asset instead of producing a structure across a number of areas like an REIT, for instance? Because of course it's easier for them to simply sell overpriced stock from builders one at a time rather than do a metric into risk diversification across a number of locations and come up with a betetr structure.

And he trotted out the usual arguments -- stock market is crap, it always goes up, will double every 7-10 years, etc etc.

The site he suggested was well beyond Ipswich, and it's a tiny town with no employers and a whole new subdivision on one side which is being sold ENTIRELY to investors -- i.e. a suburb of renters with no job to go to! Sounds like the 'art union winner' suburbs which go into decay cos full of impoverished art union winners.

Neil Jenman shows where there are whole suburbs like this on the fringe of Melbourne as an investor trap on his website.

Should we notify the authorities?

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I was 'approached' (read hard sell) very recently by a group which has latched onto this SMSF property investment thing. Selling properties in the backblocks of Qld at inflated prices. And they promise to be able to get your super out of anywhere.

My concern is that the usual two tier marketers and property scammers are coming out of the woodwork in droves now, latching on to this new rich source of capital to scam suckers with two tier pricing. I think it's a huge mistake on the part of whoever makes the super rules.

My argument to the guy was that he was asking me to put most or all of my super into one illiquid asset in the middle of nowhere, rather than a diversified risk pool. And why one physical asset instead of producing a structure across a number of areas like an REIT, for instance? Because of course it's easier for them to simply sell overpriced stock from builders one at a time rather than do a metric into risk diversification across a number of locations and come up with a betetr structure.

And he trotted out the usual arguments -- stock market is crap, it always goes up, will double every 7-10 years, etc etc.

The site he suggested was well beyond Ipswich, and it's a tiny town with no employers and a whole new subdivision on one side which is being sold ENTIRELY to investors -- i.e. a suburb of renters with no job to go to! Sounds like the 'art union winner' suburbs which go into decay cos full of impoverished art union winners.

Neil Jenman shows where there are whole suburbs like this on the fringe of Melbourne as an investor trap on his website.

Should we notify the authorities?

not sure there's anything to notify the authorities about. sounds like what they're doing, while not being highly moral, isn't illegal. peddling financial advice without (presumably) having qualifications sounds like the closest you'd get.

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I've seen a little sign at my gym advertising SMSF into real estate, so I suspect what Sean is saying is true. The scammers are already onto it, it's too big a pot of money to ignore.

Zaph, it could be that this is the very thing the authorities want to happen, or are happy to turn a blind eye to, if it keeps the bubble inflated.

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