Everyday investors trapped by shock super property ban

Australians who scrambled to protect their retirement wealth after Labor’s budget tax hit have been dealt a fresh property blow.

A Greens deal backed by the federal government is set to shut down future residential investment loans through self-managed super funds, known as SMSFs.

The move would stop SMSFs from taking out new loans to buy residential investment homes.
RELATED: Housing crisis traps ex-couples in the same home

MasterChef stars’ food empires revealed

Myer’s new home after billionaire buy out revealed

The Albanese government said the change would not affect existing borrowing arrangements and would provide a 45-day transition period for investments already under way.

Government figures show these loans make up less than 1 per cent of total residential property borrowing and less than 0.5 per cent of new residential borrowing each year.

But brokers, buyer’s agents and property advocates warned the small-market defence ignored ordinary Australians who had already started moving money, speaking to advisers and setting up super structures after the budget’s negative gearing and capital gains tax overhaul.

They also warned some investors shut-out of residential property borrowing could be pushed into commercial real estate, where higher yields were being promoted online but the risks could be far more complex.

Alba director Tom Mifsud said closing one property pathway could push inexperienced investors into assets they understood less.

“Commercial property is a very different asset class,” Mr Mifsud said.

“It has a different language, different lending conditions and different risk profile.

“A residential investor can understand a house, a tenant, a suburb and comparable sales. Commercial is not that simple.

“If inexperienced investors start chasing commercial assets because they have heard about higher yields on social media, that is dangerous.”

Mr Mifsud said the SMSF change was especially harsh because some investors had already started responding to the first wave of tax reform.

“They had adjusted. They had spoken to advisers, moved money, set up structures and, in some cases, started the SMSF process,” he said.

“Then, halfway through that process, the rules shift again. That is what makes this so harsh.”

Mr Mifsud said the change risked creating a class divide because cashed-up buyers could still buy outright while borrowers were locked out of future residential deals.

“The average person buying residential property through an SMSF is not some ultra-wealthy investor storming auctions and blowing first-home buyers out of the water,” he said.

“These are often people with modest-to-medium balances, trying to buy a sensible asset, often in the $500k-$800k range.

“The core issue is affordability and supply. You are just shifting the pain around.”

Shore Financial credit adviser Tom Bracey said many Australians had turned to super portfolios after the budget made traditional property investing less attractive.

“It is frustrating because it takes away another pathway for Australians to build wealth,” Mr Bracey said.

“With changes already being made around tax settings and investment property policy, a lot of people had started looking more seriously at buying through their SMSF. Now that option is being taken away as well.

“These are not people trying to rort the system. These are Australians trying to be strategic, trying to plan for retirement and trying to get ahead.”

Mr Bracey said the housing crisis would not be solved by repeatedly restricting investors.

“Supply. That is the answer,” he said.

“You cannot fix a housing shortage by attacking the people who help provide rental housing.”

InvestorKit founder and chief executive Arjun Paliwal said removing borrowing from SMSFs would hit ordinary Australians trying to build retirement wealth.

“For many mum-and-dad investors, an SMSF and a strategically chosen property investment represent an opportunity to build long-term wealth and reduce their reliance on the age pension later in life,” Mr Paliwal said.

“Removing borrowing from SMSFs doesn’t impact wealthy institutional investors, it impacts ordinary Australians who are trying to get ahead and create a more secure retirement for themselves.”