A Property Market Correction Could Pose A Significant Risk To Your Self-Managed Superannuation Fund (SMSF) Action Now!!
Elections, changes and where do I stand with my investments, in particular Self-Managed Superannuation Funds? Some questions that will need to be addressed in the next short period of time.
This is probably the first point of time that a Certified Valuation should be obtained, in my opinion, for SMSF purposes. Why? Simply the market regardless of Commercial and Residential has shifted, not only as to current market value but also, most probably, rental sum.
There has been no real need for a trustee of the SMSF or auditor to obtain a Certified Valuation in real terms of past years, but I would suggest that taking into account changes in property, this year is the year that a formal valuation should be obtained.
Simply, as in past years, most auditors will request an independent property valuation.
The four main reasons why SMSF trustees and auditors may need to revalue any real estate investments held by a fund include:
- In-House Assets
- Contribution Caps
What may be of assistance in particular within this year period is that the auditor/trustee believes that the valuation used in the accounts is too high, bearing in mind the change in both Commercial and Residential real estate over the last six (6) month period plus.
With reference to broad analysis, we understand that a new report by the Council of Financial Regulators and Australian Taxation Office “raises concerns about limited resource borrowing arrangements (LBRA’s) by SMSF’s, especially where an asset such as the family home is used as a guarantee”.
“LBRA’s” can represent a significant risk to some individuals’ retirement savings, particularly where they have low-balance SMSF’s with high concentration”.
“A property market correction could post a significant risk, in particular, where a personal guarantee is involved”.
“Most lenders in the SMSF market have now left and exited”.
“As borrowing can magnify losses as well as gains, allocating a large proportion of money to a single asset class or a single asset can endanger a member’s retirement savings and, depending on the age of the member, there may be little opportunity to recoup losses”.
Could I also suggest that variances in rental levels will also be of considerable interest to all participants of SMSF’s.
There is a definite change in market forces. Obtaining an independent valuation safeguards your decision making, and hence your SMSF balance.
Quote: “Coalition says no to ban on SMSF loans … recoup losses”.
Australian Financial Review, March 2019, Super, Joanna Mather.
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