The REIA’s four alternatives to restricting SMSF property investments

The Financial System Inquiry recommendations, which include limiting self managed superfunds’ investment in property, have been criticised by the Real Estate Institute of Australia (REIA) who remain unconvinced about the risks.

REIA chief executive Amanda Lynch said they welcome the release of the Inquiry as an opportunity to identify scope for concern, but see a number of recommendations that could burden home borrowers.

“REIA is not convinced that the risks associated with lending through self managed superannuation funds (SMSFs) warrant the recommendations to limit the scope for SMSFs to invest in property,” she said.

“While we have well-documented concerns around the inappropriate marketing of property as part of an SMSF, REIA would be concerned by any move to restrict the possibility for mum and dad investors to secure their retirement through a balanced portfolio which includes property.”

The submission made by the REIA in August to the interim report noted that it is the place of the Inquiry to report on integrity and risks to the financial systems.

At the time, they warned that proposals around prohibiting SMSFs from leveraging into property “could be seen as passing an assessment on what are suitable investments for individuals.”

“Further, it ignores the fact that lending to SMSFs is such a very small part of the financial system that it is inconceivable that it presents a risk to it, even with further growth,” the submitted.

They noted that borrowers already have a number of restrictions, including the use of the property, the arms-length relationship with tenancies, and annual auditor scrutiny.

“To impose a prohibition on borrowing by SMSFs would put a constraint on the maximising of the profits of those funds and thus limit retirement savings,” the submission noted.

In fact, they made these four recommendations instead:

1. That the risk weights for insured loans be reduced.
   
   
2. That the current arrangements regarding negative gearing remain unchanged.
   
   
3. That a data base be developed to reduce information asymmetries between lenders and borrowers.
   
   
4. That the current arrangements regarding leveraging by superannuation funds remain unchanged.