Media blamed for alarmist SMSF reporting

Sensational media reports that claim a large and rapidly growing number of self-managed superannuation funds are gearing up to invest in property are unsupported by data, according to the latest SMSF data.

The Heffron SMSF Borrowing Data Report showed only 12 per cent, or 208, of the 1,700 SMSFs administered by Heffron had a Limited Recourse Borrowing Arrangement (LRBA) in place as at December 10, 2013.

This was slightly up from the 7 per cent, or 95 funds, which had a LRBA in 2012 and the 4 per cent, or 39 funds, which had a LRBA in 2011.

Heffron’s head of document services Duane Pinches said the rate of growth in LRBAs was still quite small, which was also reflected in the latest ATO data.

“There have been a lot of alarmist statements about the rate of penetration of borrowings in SMSFs without much data to support these statements,” he said.

“It is also worth noting that SMSF LRBAs have a number of unique criteria such as much lower loan to value ratios than non-SMSF loans and are non-recourse thereby protecting the other assets within the SMSF in the event of default.

“These two factors make SMSF loans far less exposed to property corrections than other non-SMSF loan structures.”

Pinches said there were elements of inappropriate advice in relation to property across the entire market, not just in relation to SMSFs.

He called for greater regulation of the property industry including the requirement for property advisers to fall under the Australian Financial Services Licence regime if they wanted to promote SMSF borrowing structures to clients.

Heffron SMSF Solutions is an independent SMSF administrator which administers over 1,700 funds. The group’s Document Services division prepares the required LRBA documents for SMSFs.