SMSF sector stands strong
The property market looks set to stay in favour with those managing their own retirement funds
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AUSTRALIA'S SMSF sector is recording steady year-on-year growth, with the total number of SMSFs rising to 597,900 as at June 2021, according to the ATO.
Per Amundsen, director of Thinktank, says the SMSF sector was extremely active during the last half of 2021, evidenced by the ATO’s figures as well as his own experience as a property lending specialist, and volumes continued to rise each month.
“The size of loan has remained consistent right across the sector, with the average being in the range of $500k. The growth in consumer uptake naturally flows on to brokers, placing them in a great position to help borrowers shape and prepare their LRBA application,” Amundsen says.
Breaking into the market
Broker education is valuable and is available through a number of industry sources, particularly via individual lenders who offer professional development aligned with their own products and systems, Amundsen says.
“Usually, lenders will want brokers to be specifically accredited for SMSF lending, and that can be either for a specific lender or with their aggregator. Most important is for brokers to establish a close working relationship with lender relationship managers so that any type of question can be answered quickly to avoid unnecessary delays in the submission process,” he says.
La Trobe Financial also recommends brokers undertake a relevant training program that covers the basics of SMSF lending, and Bannister says it's not as complex as brokers tend to think. “Any broker who has done a trust loan will find that an SMSF loan is very similar – an LRBA simply involves a trust within a trust."
Thinktank holds free SMSF LRBA education sessions in conjunction with its aggregator partners to discuss and workshop deals with brokers – from the basic to more complex SMSF LRBA solutions and structures. La Trobe Financial offers direct access to credit staff who are willing to educate and assist brokers throughout the process.
Will changes in the lending environment slow the roll?
Australia's property market has enjoyed a wild – and upwardly trending – ride through the pandemic, courtesy of record-low interest rates. Which begs the question: with banks tipped to increase rates several times this year, will interest wane for SMSF property investors?
“Affordability concerns continuing to emerge on the back of strong house price appreciation and the current tight supply of available rental properties will see an increase [in SMSF investor purchasing] to capitalise on the healthy yield premiums and potential capital growth.” Bannister says.
In fact, the impact of the pandemic is expected to continue to drive further growth in the SMSF sector as many Australians begin to take greater interest in their investments, including superannuation. Bannister says La Trobe Financial believes this could lead to more millennials setting up their own SMSFs, following the trend observed in equity markets, which have seen millennial participation increase by over 100% in some platforms.
“Combine this growing trend of people wanting to make their own investment decisions with Australians' love of real estate and a resurgence of property investor activity in the market broadly, and we see some strong tailwinds for the sector,” he says.
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AUSTRALIAN SMSFs IN NUMBERS – JUNE 2021
“Our experience tells us that SMSF loans are not a price-driven product; rather they are solution focused, which is a rational approach given they are often facilitating a long-term retirement investment,” he says.
The product's unique mechanics play a part in reducing the criticality of price. Bannister says loan serviceability is handled entirely within the SMSF, in the majority of cases, by rental income generated by the asset being funded and SMSFs often holding a substantial portion of their assets in cash. This effectively provides a liquidity buffer for when asset returns (rental income in the case of property) are delayed or outstanding for a short period.
“The long-term nature of SMSFs, where movements in floating and fixed rates are smoothed out over time, is one of the aspects that makes real property an attractive investment for entities like SMSFs, particularly when the investment is 'business real property’ which often involves a family business and a long-term investment for retirement purposes,” Amundsen says.
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The future looks bright
While the popularity of investing in commercial property has surprised many, Amundsen says the consistent growth of SMSFs can be attributed to the advantages available to self-employed business operators when investing in business real property.
“Changes like the increase in the maximum number of members to six have opened up more opportunities for work partners to invest when the number exceeds four, and to accommodate larger families,” he says.
Bannister adds, “[This means] they would be able to increase the Superannuation Guarantee contributions from most commonly $50,000 to potentially $150,000 if all members made the maximum possible concessional contribution.”
Amundsen notes that commentators raised concerns some years ago about the potential for the market to be dominated by residential SMSFs, when in fact the level of investment in commercial property has been running at about double that of residential.
“To the well advised, the advantages of running an SME to invest in your own business premises can be quite compelling. This isn't to say that the level of investment in residential property will not also remain strong,” Amundsen says.
For PAYG individuals who wish to invest directly in real property to support retirement planning via superannuation, Amundsen says SMSFs are the only vehicle available, and residential property will often be their preferred option, for example.
La Trobe Financial predicts that several factors will help boost the number of SMSFs investing in residential property.
One of Australia’s leading diversified credit asset managers, La Trobe Financial has $13bn in assets under management. Since 1952, the company has been driven by one cause – to place “others before self” and make a positive impact by helping people create wealth with its specialist financing and investment solutions to building a sustainable future.
With seven decades of proven credit management, La Trobe Financial has funded over $34bn worth of investments for more than 168,000 customers. Its investors include large global institutions, Australia’s major banks, family offices, fund managers, and c.70,000 everyday investors in its award-winning Credit Fund.
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Leading property lending specialist Thinktank has provided over $5bn worth of commercial, residential and SMSF lending solutions since 2006. In this time, it has enabled thousands of borrowers to achieve their goals of acquisition, refinance and equity release.
As an independent lender, Thinktank has established a respected track record in capital markets, having issued over $2.5bn in AAA-rated bonds to Australian and global institutional investors to date. The company has more recently introduced two mortgage-secured investment fund options for Australian wholesale and sophisticated investors.
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“Most players in this industry are looking at this and see why apartment values are going up, not down,” he says. “Most building owners are looking straight through [the pandemic]. Even if they own in an area where rents are soft today, this will come back when the borders open, students return and we are bringing 400,000 people in per year. We are not building enough housing for that many people.
“Pre-pandemic, the market was super tight almost everywhere, so I see that when the pandemic ends or at least the borders reopen, the demand for rental units will increase quite a bit. Vacancies will come down, rents will go up, and that is why apartment owners are looking straight through to an active market.”
Leading property lending specialist Thinktank has provided over $5bn worth of commercial, residential and SMSF lending solutions since 2006. In this time, it has enabled thousands of borrowers to achieve their goals of acquisition, refinance and equity release.
As an independent lender, Thinktank has established a respected track record in capital markets, having issued over $2.5bn in AAA-rated bonds to Australian and global institutional investors to date. The company has more recently introduced two mortgage-secured investment fund options for Australian wholesale and sophisticated investors.
Find out more
“The degree by which the SMSF sector continues to be embraced by ordinary Australians is a staggering endorsement of its ongoing value”
Cory Bannister,
La Trobe Financial
In Partnership with
What is driving this growth? Cory Bannister, chief lending officer at La Trobe Financial, credits Australians' desire to control their own destiny and remain independent as key factors.
“This drive to ‘self-manage’ their own retirement superannuation funding and choose how to manage it, without complex or exorbitant manager fees, is almost uniquely complemented with property as an asset class that most Australians are comfortable with,” he says.
Bannister also notes that SMSF loan demand has been accelerated by a normalisation of property investor activity levels generally in the market following a period of interruption caused by COVID-19. This is set to continue: La Trobe Financial anticipates strong forward demand for SMSF loans as international borders reopen and foreign students and migration begin to return to pre-COVID levels.
"We expect to see the sector continuing to offer solid growth and opportunities for lenders and brokers across residential and commercial property investments”
Per Amundsen,
Thinktank
Cory Bannister
La Trobe Financial
Per Amundsen
Thinktank
Industry Experts
Before Thinktank – a leading independent property lending specialist – director Per Amundsen built a book of $1.5bn in SME commercial property loans in his role as general manager of AMP Property Finance. He also brings to the company an amalgamation of property finance experience from institutions such as Toronto Dominion, Westpac and Mirvac, and is an executive member of the Risk Management Association Australia.
Thinktank
Per Amundsen
Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He joined the company in 2000 and has held both head of credit and head of distribution roles. His portfolio management experience spans the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1bn. Bannister is chairman of the company's Origination & Credit Committee and Large Loan Sub-Committee, and a member of the Executive Committee and the Asset Liability Committee.
La Trobe Financial
Cory Bannister
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Thinktank
Cory Bannister
La Trobe Financial
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MEMBERSHIP OF AUSTRALIAN SMSFs BY GENDER, AGE
Industry experts
Before Thinktank – a leading independent property lending specialist – director Per Amundsen built a book of $1.5bn in SME commercial property loans in his role as general manager of AMP Property Finance. He also brings to the company an amalgamation of property finance experience from institutions such as Toronto Dominion, Westpac and Mirvac, and is an executive member of the Risk Management Association Australia.
Thinktank
Per Amundsen
Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He joined the company in 2000 and has held both head of credit and head of distribution roles. His portfolio management experience spans the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1bn. Bannister is chairman of the company's Origination & Credit Committee and Large Loan Sub-Committee, and a member of the Executive Committee and the Asset Liability Committee.
La Trobe Financial
Cory Bannister
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SMSFs
600,000
members
1.1 million
in assets
$822bn
around 25% of the $3.3trn invested in superannuation
“Thinktank’s view is that interest rate increases from the current ultra-low levels are inevitable but will probably be modest in the year ahead and not have a significant impact on borrowing activity,” Amundsen says. He also notes that the compelling benefits of SMSF lending for those it does suit mean that it's less sensitive to interest rates.
Bannister adds that very few major lenders currently offer SMSF loans, so the recent recalibration of major banks' loan pricing is unlikely to impact this product segment. However, when rates increase across the sector more broadly, La Trobe Financial does not expect any material impediment to the growth of SMSF loans in isolation.
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In Partnership with
Cory Bannister
La Trobe Financial
Per Amundsen
Thinktank
Industry Experts
Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He joined the company in 2000 and has held both head of credit and head of distribution roles. His portfolio management experience spans the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1bn. Bannister is chairman of the company's Origination & Credit Committee and Large Loan Sub-Committee, and a member of the Executive Committee and the Asset Liability Committee.
La Trobe Financial
Cory Bannister
Before Thinktank – a leading independent property lending specialist – director Per Amundsen built a book of $1.5bn in SME commercial property loans in his role as general manager of AMP Property Finance. He also brings to the company an amalgamation of property finance experience from institutions such as Toronto Dominion, Westpac and Mirvac, and is an executive member of the Risk Management Association Australia.
Thinktank
Per Amundsen
“Thinktank’s view is that interest rate increases from the current ultra-low levels are inevitable but will probably be modest in the year ahead and not have a significant impact on borrowing activity,” Amundsen says. He also notes that the compelling benefits of SMSF lending for those it does suit mean that it's less sensitive to interest rates.
Bannister adds that very few major lenders currently offer SMSF loans, so the recent recalibration of major banks' loan pricing is unlikely to impact this product segment. However, when rates increase across the sector more broadly, La Trobe Financial does not expect any material impediment to the growth of SMSF loans in isolation.
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AUSTRALIAN SMSFs IN NUMBERS – JUNE 2021
in assets
around 25% of the $3.3trn invested in superannuation
$822bn
members
1.1 million
SMSFs
600,000