Property Investment Gone Wrong and Your Superannuation
Mar 05, 2018
When it comes to your superannuation, the future is here and now.
What actions you take now will heavily influence the outcome when it comes time to retire.
Over the past few years, Self-Managed Superannuation Funds (SMSFs) have gained such popularity there are now more than 600,000 in Australia, managing around $700 billion in assets. This is according to figures from the Australian Prudential Regulation Authority (APRA), and the Australian Taxation Office (ATO). In addition, the statistics show us the average balance of an SMSF is more than $1.1 million.
In fact, according to the ATO, in the five years to 2017, SMSF assets grew by $274.3 billion, or a staggering 65 per cent. Not bad if you have the nous to work it to your advantage.
But while it is certainly a growing sector, it is not one to be entered lightly.
While many use “administrators” to manage their funds, others are keen to get in and give it a go themselves – and it’s often to their detriment. The dilemma is the monies they are placing into these funds are, in reality, their pension – and that is fraught with danger if they don’t know what they are doing. They could potentially be left with nothing, simply because they haven’t managed the risks.
As with any investment there are pitfalls to look out for. And it all comes down to doing your research and knowing what you are investing in.
RiskWise research shows off-the-plan (OTP) properties, which are very popular with many SMSFs, actually carry a high level of risk largely due to potential oversupply - leading to squashed property values, high vacancy rates and a cooler market. The three major types of risks associated with over-supplied OTP high-risk suburbs are Equity Risk, Cashflow Risk and Settlement Risk and they all add up to potential disaster for the anyone staring retirement in the face.
And unfortunately, according to the RiskWise Residential Risks & Opportunities Report there are a lack of alternative investments to residential lending for SMSFs ‑ the main two being deposits and shares.
The report states: “ … the two measures that best reflect the attractiveness of these types of investments are term deposits and the ASX 200. Lack of attractive investment alternatives increase investors’ demand for property investment, and drive prices up, and vice versa”.What it basically comes down to is shares vs cash as these are the drivers that enable people to manage their own super funds.
However, the key is research and education. Knowing that property investment, particularly OTP, is a risk - despite its popularity - gets you ahead of the game. Understanding that purchasing existing properties rather than OTP means minimising the risks is also imperative. Companies such as RiskWise offer that level of security, and peace of mind, thanks to its in-depth analysis of the property market and where the risks, as well as opportunities, lie.
Being “risk wise” means that future you are building now will look brighter and brighter the closer it gets.