The short answer is yes, and it’s yet another example of how the investing landscape is constantly evolving. One trend gaining significant traction in recent years is the rise of self-managed super funds (SMSFs) and their member’s increasing inclination towards real estate investments. Let’s delve into the numbers and explore why this trend is rising.

An SMSF is not like industry and retail super funds. It is a private super fund that individuals manage themselves, i.e., you can choose the investments yourself. An SMSF can have no more than six members. As a member, you are a trustee of the fund—or you can get a corporate trustee. In either case, you are responsible for the fund.

While having control over your own super can be appealing, it involves some work on your part. It also comes with risks, establishment, and ongoing costs relating to taxation and compliance that can set you back thousands of dollars. 

Plenty of Aussies, however, are choosing the DIY path regarding their superannuation. According to the Australian Taxation Office (ATO), as of June 2023[i], over 610,000 SMSFs collectively held a staggering $876 billion in assets, with more than 1.1 million members. These figures underscore the substantial presence and growing importance of SMSFs as an investment option. 

What’s particularly noteworthy is the trajectory of SMSF assets over the years. Despite minor fluctuations, the average SMSF asset size has enjoyed an 18% increase over five years, indicating sustained growth and confidence in this investment vehicle. Moreover, a significant proportion of SMSFs have stood the test of time, with 65% in existence for over a decade, showcasing their enduring appeal and stability.

Delving deeper into the demographics, it’s evident that SMSFs are not just a vehicle for older investors. While the median age of all SMSF members stood at 62, newly established funds in 2021-22 boasted a median age of 46. This signals a generational shift, with a younger cohort increasingly embracing SMSFs as a means of wealth accumulation and retirement planning.

One of the most compelling aspects of SMSFs is that they allow for investment choice. While traditionally associated with shares, cash and fixed-interest investments, SMSFs are increasingly venturing into real estate. Total SMSF investment in real estate surged to $166.9 billion in 2020–21[ii], marking a steady uptick from $137.0 billion in 2016–17. This trend underscores the growing confidence in real estate as a viable asset class within SMSF portfolios.

However, it’s imperative for SMSF trustees considering real estate investments take the time to navigate the regulatory landscape diligently. For example, there is the ‘sole purpose test’ that mandates that SMSF assets must be solely geared towards providing retirement benefits to members. This means that properties owned by an SMSF cannot be utilised for personal use by members or their relatives, nor can they be rented out.

Compliance with superannuation laws is paramount, as breaches can lead to penalties and potential disqualification as a trustee. SMSF trustees must ensure property acquisitions adhere to stringent guidelines, including not purchasing from related parties and avoiding personal use or rental arrangements with members or their associates. If you think your fund's property investment may be breaching the superannuation laws, you should ask your SMSF professional or accountant for assistance on ways to correct the breaches.

Moreover, vigilance is essential to avoid falling prey to illegal schemes promoting the misuse of SMSFs for personal property acquisitions. Any suspicions of non-compliance should be promptly addressed with the Australian Tax Officer by calling 13 10 30 to inform them and get advice. 

Contact your local Raine & Horne office today for more information about the investment property market in a suburb or town you’re considering.

 
[i] https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-newsroom/latest-annual-stats-show-the-smsf-sector-continues-to-grow
[ii] https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/in-detail/statistics/annual-reports/self-managed-super-funds-a-statistical-overview-2020-21/investment-profile