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Dr. Mark Sinclair
Dr. Mark Sinclair, Mentor Education

Property bubble just hype, say experts.

6 October 2013

Recent widespread concerns that the massive increase of SMSFs into property are creating a property bubble are overhyped and misleading according to industry experts.

With recent debate of the impending danger of a housing bubble and the central bank issuing concerns that gearing in SMSFs could potentially put household finances at risk, several pundits have scoffed that there was no evidence of abnormal growth rates in SMSF property holdings and The Reserve Bank of Australia last week released its Financial Stability Review for September 2013, drawing attention to the increased interest in limited recourse borrowing arrangements (LRBAs) to purchase property.

The report states that, “property holdings by SMSFs have increased and this type of investment strategy is being heavily promoted. The sector therefore represents a vehicle for potentially speculative demand for property that did not exist in the past. There are some signs that households are taking on more risk in their investment decisions, and the potential for a further increase in property gearing in SMSFs is a development that will be monitored closely by authorities for its implications both for risks to financial stability and consumer protection.”

In light of the recent concerns Prime Minister Tony Abbott, has, “refused to speculate on any potential government action related to borrowing in SMSFs, and reaffirmed the Coalition’s commitment to making no adverse changes to superannuation.”

However industry heavyweights have hit out at claims that borrowing in SMSFs is out of control or adversely affecting the Australian property market, with statistics indicating geared property in SMSFs makes up less than one half of one per cent of their total investments.

Graeme Colley, director of technical and professional standards at the SMSF Professionals’ Association of Australia has hit back claiming, ”it would take a huge shift in investments to influence the real estate market compared with individual investors who use negative gearing to purchase property.”