Bad advice about buying property in superannuation is threatening the retirement savings of a growing number of Australians.
Property spruikers have been proliferating and some advisers have been charging exorbitant fees to set up a self-managed super fund to own residential real estate inside it, super experts say. Dylan Crowe, the managing director of SMSF advice business Superannuation Property, says he has seen people being charged $12,000 to set up an SMSF and advisers taking six months to do it, causing the property purchase contract to collapse.
“It wasn’t just a one off case – it was multiple cases,” Crowe says. “Often the advice has been given by spruikers working with property developers who clearly have an agenda in the best interests of the developer and not the client seeking help. “The inappropriate, overly simplistic blanket advice they give you can lead to your worst investment decision.”
The Australian Securities and Investments Commission has flagged a tighter focus on these property investments in super, which often involve the SMSF owner borrowing money inside their fund to complete the deal. The SMSF Professionals’ Association of Australia has noticed an increase in spruikers promoting various property investments in SMSFs using borrowed money.
SPAA senior manager, technical and policy Jordan George says seminars have been a major method for spruikers recruiting investors, but others have used mainstream advertising and even set up stands at shopping centres. “We think that borrowing in an SMSF to fund a property investment is something that can suit some investors, but it depends on the individual’s circumstances,” he says.
“The key is getting good, professional, competent advice so you can understand the benefits and the risks.” Pauline Vamos, chief executive of super industry group ASFA, says reports of SMSF members being offered luxury overseas holidays if they buy property in their fund shows there should be mandatory licencing for anyone who sells investment products to SMSFs.
“Provision of large incentives indicates that a property is not being sold at a fair market price,” she says. “ASFA has been concerned about the growing number of people targeted by schemes that offer attractive incentives upfront at the expense of good retirement outcomes down the track.”
Crowe says residential property in super should be considered in the same light as financial products. “Can they afford it? Is there enough money in their fund? Is it going to cost them too much?” he says.
Setting up an SMSF property plan requires at least $150,000 but that can be spread among up to four members, Crowe says. “You can buy property inside your super without having to be a millionaire. Understand the basic rules – your SMSF must be set up before you can even look at a property.”