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Wednesday, 18 December 2013 02:44

Investing in property through a super fund smsf

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PROPERTY AND EQUITIES ARE THE MOST ATTRACTIVE ASSET CLASSES IN THE CURRENT ENVIRONMENT. 1 MILLION AUSTRALIANS, ABOUT 6 PER CENT OF THE POPULATION OWN AN INVESTMENT PROPERTY, NOT MUCH OF THIS IS HELD INSIDE A SELF MANAGED SUPERANNUATION FUND (SMSF).

 

The Australian residential property market has shown a 5.3 per cent annual growth in sales with a 4 per cent growth in the quarter ending August 2013. The historic low cash rate of 2.5 per cent has been evidently driving the current market statistics. However, other market statistics showed a 4.7 per cent fall last month in new home sales. This was the first decline since January 2013. Australian capital city dwelling values grew by 0.5 per cent in August 2013. This growth can be attributed to the increased affordability, rising demand from the increased population and decreased supply from credit-constrained property developers.

Investments in property can be made either directly through the purchase of specific buildings or structures, or indirectly through either listed or unlisted property trusts. Trusts are an effective investment vehicle for SMSF trustees who want to create a diversified property portfolio, because direct property investments require significant funds.

Direct

Indirect

Residential

Real estate investment trusts (REITs)

Commercial (business real property)         

Unlisted property trusts
Related party unit trust (reg 13.22C trust)
Unrelated unit trust (can be geared)

Direct property investment

Direct property investment is the direct purchase of specific properties by the trustee on behalf of the SMSF. The super fund has direct control of the asset. The fund receives rental or lease income and the fund is responsible for maintaining the property. The rental or lease agreement is between the super fund and the tenant. Direct property cannot be purchased from a related party unless it is classified as business real property (BRP). Related Party tenants are only allowed under the Superannuation Industry (Supervision) Act 1993 (SISA) if the property is business real property.

 

Residential Property

Commercial Property (BRP)

Buy within a SMSF

Yes

Yes

Rent it to a related party

No

Yes

Transfer existing property into SMSF

No

Yes

Property Development

Yes

Yes

Indirect property investment

SMSFs can invest in property indirectly either by purchasing units in an unlisted property trust or through Real Estate Investment Trusts (REITs).

Unlisted property trusts

An unlisted property trust is where a group of investors pool their money under a trust structure and the property is bought under the trust name. A SMSF can acquire units in a unit trust to acquire a share of a property indirectly. This strategy is commonly used where a SMSF has insufficient capital to acquire a direct property asset.

If the other unit holders of the trust are related to the trustees of the SMSF then the unit trust MUST be un-geared meaning there cannot be any borrowings within the trust and the underlying assets of the trust cannot be used as security for any borrowings. This is to comply with SISR 13.22C.

 

However, where each unit holder of the trust is unrelated or holds a 50 per cent or less interest in the trust, borrowing can occur within the Trust (and a charge taken over the property). This can create an opportunity for property development.

Read 631797 times Last modified on Thursday, 04 June 2015 01:15
Sinan Demir

Sinan graduated with a degree in Bachelor of Commerce, majoring in Accounting and Commercial Law, and is currently a fully qualified CPA.

Sinan has over 18 years of accounting experience, and has a wealth of knowledge in accounting and tax matters, relating to small to medium enterprises.

 

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