The Self-Managed Super Funds (SMSF) market is the fastest growing sector of superannuation industry. Since their introduction in 1999, SMSFs have grown to account for approximately one third of the total superannuation assets in Australia. The Australian prudential Regulation Authority (APRA) estimates that there were 470,000 SMSFs in Australia as at 30 June 2012.
The value in real estate investments held by SMSFs has increased over the years, according to SMSF professionals’ Association of Australia (SPAA) Director of Technical and Professional Standards Graeme Colley.
“It (the value of real estate investments held by SMSFs) may be due to the increase in the market value of the property, any improvements or additions that are made to the property and a net increase due to new properties being acquired”, Graeme said.
Real Estate and SMSFs
SMSFs can acquire two types of property: residential and commercial. Conditions apply in both instances.
“If the fund owns the property directly, the rules prohibit a mortgage or any other encumbrance being placed over it. However, it is possible for the SMSF to indirectly have an interest in property if it owns shares in a company, or units in a trust which owns a commercial or domestic property”, Graeme explains.
As SMSF is also able to have an interest in a property that is mortgages if it enters into an arrangement called a limited recourse borrowing arrangement, where the SMSF borrows to purchase a property, which is held in trust on behalf of the fund until the mortgage is paid off.