What will become of the SMSF investor?
In the wake of the Hayne Royal Commission, investors are waiting in anticipation of how lenders will treat Self-Managed Super Funds.
Like reprimanded schoolboys, the major banks tightened lending procedures during the investigation into the Banking, Finance and Superannuation Industries. Criticised before and during the hearings for being too loose with their lending practices, the Big Four made a 180-degree turn, finding new reasons each day to knock back applicants: everything from self-employment to applicants’ fondness of home delivery dinners.
But, aside from the odd recommendation for change, the Final Report avoided suggesting harsh measures for the banking sector. In fact, shares rallied 4%-6.5% for the Big Four banks in the 24 hours following the release of the Final Report, such was the recommendations for the sector.
Currently, NAB is the only one of the Big Four still entertaining the use of SMSFs for the purchase of commercial property. Now, with the Royal Commission behind them, will the other banks return to the fold?
From 2012-2017, the Australian Taxation Office revealed investment in commercial property via SMSFs increased from $53.2 billion to $78.2 billion. Commercial property has proven to be a resilient investment class offering gross yields of between 6 and 8% - significantly higher than residential property.
SMSFs offer a valuable contribution to the commercial property market.
SMSFs are suited to wide array of commercial property: strata warehouses in light industrial estates; service stations; strata office suites; takeaway food outlets situated on suburban strip retail; the opportunities are endless.
LJ Hooker Commercial Managing Director Mathew Tiller said: “SMSFs are a natural enabler for investors wanting to build their wealth. And, on the other side of the coin, they play an important role in fostering business, aiding supply and making rents sustainable so business owners can direct operating capital to other areas such as business development and employing staff”.
According to Ty Blanch
, Area Specialist at LJ Hooker Commercial Central Coast
, there is a significant appetite from the market to utilise Super savings.
“Before the Royal Commission, 70% of my sales were SMSF (sales),” he said.
“But with NAB the only one of the majors still working in the SMSF space, that dropped off. You can still find second-tier lenders but the process is much harder. And at NAB, there was such a huge bottleneck that the vast majority of applicants simply gave up.”
It has been a similar story in the nation’s capital, said co-Principal of LJ Hooker Commercial Canberra
, Mark Thompson
“Our enquiry levels in the second half of 2018 dropped about 50% as a result of everything happening in the financial sector,” said Mr Thompson. “And much of that drop off had been from investors in SMSFs.
“It’s ironic to me, because the Super Funds are the institutions that are probably least likely to fall over – it gets back to the Government’s belief that Super should be sacrosanct.”
But beyond SMSF activity, Mr Thompson said the credit crunch produced by the Royal Commission extended across the board. The crunch had created a new kin – the cash buyer.
“Buyers and investors who are now in the market, know that they’re in a strong position. Anyone that’s needing to divest has been having to deal with the fact that finance – and, subsequently, buyers – have been hard to come by.
“We listed a property in September last year and expected to get 30 enquiries for it. Instead, we got five, and only one you would say was of genuine interest
” Whilst predicting the policy movements of banks was as fool-proof as ‘crystal-balling’, Mr Tiller said the fundamentals of commercial property – which continues to enjoy capital and rental growth, unlike the residential sector – had to be acknowledged by the banks.
Macro-economic conditions, including a national unemployment rate of 5% - unemployment averaged 6.85% between 1978 to 2018 – a lower Dollar bolstering the export markets and a health infrastructure pipeline bode well for the safety and demand of commercial property as an investment.
“Our network members were relaying to me some quite unbelievable instances in which sales didn’t eventuate because of policy anomalies from lenders,” he said.
“Many buyers cooled their heels during the Commission process because they were simply frustrated by all the hoops they had to jump through.
“Lending will never be as flexible as it was pre-Commission, but there’s definitely scope for easing from its current position,” he said.
“The fundamentals of commercial property are strong: there will always be a willingness for investors to support their portfolios through commercial property. Time will tell whether the banks recognise this ready and able market.”
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