Residential property plays only a minor role in self managed super fund (SMSF) investment portfolios, according to Graeme Colley, director of technical and professional standards, SMSF Association.
Property is the third-largest asset class of SMSF investment, with the combination of direct investments and real estate investment trusts totaling around 15 per cent of the total pool of SMSF assets.
When it comes to assumptions that residential property equates for a majority of these investments, Colley says, “That’s quite incorrect. In fact, 80 per cent of the investments of SMSFs are in commercial properties.”
“These are not necessarily properties connected to the underlying member of the SMSF or connected entities. They’re also looking at the open market of commercial property and are investing via arms length arrangements,” he says.
“SMSFs often get criticised for the proportion of assets invested in those two particular sectors [equities, including property, and cash and fixed term assets] but there’s good reason why people go into it. You want to be really looking at a diversified portfolio.”
“People have this misconception that most of it is invested in domestic property, which is not true. It’s not only in the direct investments of SMSFs, but also indirectly through shareholdings that people might have in equities,” Colley says.
Education is needed
Richard Stacker, head of direct property, Charter Hall, believes more education is needed, particularly among non-advised SMSF investors, about the variety of property assets they can invest in.
“To give people greater education of what commercial property brings to the table for those investors…and diversify away from the property they live in now while still giving them property exposure,” he says.
Advisers inside some financial planning dealer groups are hamstrung by their approved product list (APL), which often restricts them to recommending REITs or other listed property funds.
“Institutions have been well across it for many years…the opportunity is to bring in some direct property and hopefully to change the weightings, almost in the way that institutions are thinking about it, as a longer term asset class with lower volatility,” Stacker says.
Pointing to the 30 per cent returns delivered by Australian REITs last year, “It’s hard to say that’s a stable asset class,” he says.
Some dealer groups are providing more strategic advice on property assets and adding a greater range to their APLs, bringing in external researchers to rate property investments. “Underpinning that is a strategy of some sort. But I’m not sure it’s as widespread as it needs to be,” says Jennifer Johnstone-Kaiser, head of research for Australia and New Zealand property, Mercer.
“The worst-case scenario with owning your own home is putting all your eggs in one basket and believing that putting that control over your decision gives you liquidity, but it doesn’t. You might get caught in a cycle at a time when you need your capital the most, when you’re in the drawdown phase of your retirement,” she says.
