Off the plan SMSF investors face challenges under higher deposit era
Tim Mackay, principal of financial advice firm Quantum Financial, says property investors struggling to pay higher demanded deposits on off the plan purchases through their SMSFs need to be careful they do not breach Australian Taxation Office rules.
Abrupt lending policy changes on required deposit has meant some buyers have lost out on valuable tax deductions given the top up deposit balance was a non-concessional (or after-tax) contribution.
His other recommendations to Australian Financial Review readers included:
- Consider if the investment is worth keeping. It might be worth cutting losses rather than losing generous tax concessions or being forced to liquidate scheme assets on unfavourable terms;
- Reduce costs;
- Sell other assets in the fund to reduce the debt;
- Contribute more to your super – either through personal contributions or salary-sacrificing (making pre-tax contributions);
- Seek a better deal on your loan;
- Review existing advice and question how it allowed you to get into mortgage stress.
Last week it was suggested one in three off-the-plan Bankstown district investors are facing financial distress completing purchase of their properties because of tough new lending rules for higher deposits.
Chan & Naylor partner Peter Ristevski's analysis suggested he had not had anyone's sale fall through yet with second mortgages being secured at higher interest rates.
Financial planner Sam Henderson, chief executive of Henderson Maxwell, says he thinks buying a property using SMSF was a great idea for a solid long-term strategy, but only for the right people and under the right conditions.
"The idea of an off-the-plan development diminishes my excitement owing to potential onerous sunset clauses (whereby developers can change the terms and price), banks altering their lending criteria between exchange of contract and settlement, developers potentially going bust and the common issue of being surrounded by scores of similar properties in overdeveloped suburbs," he suggested to AFR readers.
"Consider, for example, that you buy a $700,000 property and put down your 10% deposit of $70,000.
"Let's assume the bank has agreed to fund your loan of 80% (thereby allowing you to use $140,000 of your fund as a deposit) and that you will fund the stamp duty via your next contribution of $30,000.
"Let's say the bank changes its view on SMSF loans and drops its LVR (loan to value ratio) so it will lend to 60 per cent, as many of the banks do for commercial properties.
"Well, you've just done your $70,000 deposit!"
