Are SMSFs driving up property prices?



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Property has long been a popular investment strategy for Australians. However, increased investment activity in residential property by self-managed superannuation funds (SMSFs) is worrying regulators amid concerns it may be pushing up house prices.

In its just released Financial Stability Review, the Reserve Bank of Australia noted that SMSFs have become more active in the property investment market following changes in legislation since 2007 that have allowed the funds to borrow money to invest in property.

The RBA warned in the report: “One risk of the increase in property investment by SMSFs is that at least some of it is a new source of demand that could potentially exacerbate property price cycles.”

Who’s to blame?

If you are in the market to buy your first home, the prospect of rising property prices would be worrying. But are SMSFs to blame?

Helen Hodgson, senior lecturer at the University of NSW’s School of Tax and Business Law, said SMSFs are just one factor contributing to increased activity in the property market, which in turn drives up property prices.

For starters, historically low interest rates are encouraging more individuals – not just self-managed superannuation funds – to buy investment properties, she said. Another factor at play is the increase in foreign investors buying property in Australia – in the three months to the end of September, foreign investors snapped up 12 percent of property sales across Australia, while SMSFs account for about 10 percent of sales.

“Yes, we’re having a lot of activity in the property market. The question is what’s driving that activity,” Hodgson. “I’d be reluctant to say it’s driven by one group or another, but certainly the combination is heating up the market.”

SMSF remains a small player

The SMSF Professional Association of Australia has downplayed the role of SMSFs in heating up the market, saying that residential property is a minor element of the SMSF investment market.

Dr Andrew Wilson, senior economist with Australian Property Monitors, agreed. “There are significant obstacles to investment by SMSF in residential property and as such I believe it remains a niche segment of the current investment market,” he said. “However, there is no doubt that it’s a growing influence although currently minor.”

One third of all Australian superannuation assets are held in SMSFs. If you are a member of a self-managed super fund and would like to research SMSF loans to invest in property, you can do so on RateCity.com.au.

Where are prices rising?

According to Dr Wilson, house price growth due to increased investor activity is largely in Sydney’s western suburbs and some regional areas such as Toowoomba in Queensland. “Price rises in Perth, another recently popular investor market, appear to be flattening,” he said.

“The latest ABS [Australian Bureau of Statistics] investment loan data reports a drop in national investment activity over August to $8.9 billion, with only NSW recording a very small rise over the month,” Dr Wilson added.

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