SMSFs fueling Sydney property markets

October 20, 2010 | Retail | Commercial

Investors looking to place commercial and retail properties in their self-managed super funds are fuelling a wave of activity in Sydney’s metropolitan markets, according to Colliers International.

Matthew Meynell, Colliers International Director of Investment Services, said while traditional private investors are still conservative post-GFC, ‘Mum and Dad’ investors are driving demand for holdings priced between $1 million and $5 million.

“I would say close to 50 per cent of enquiries I receive for properties located in Sydney’s fringe metropolitan markets, like Surry Hills, Drummoyne and Gladesville, are now from investors looking to put the asset in their self-managed super funds (SMSFs),” he said.

“This is a significant jump in activity within this market, and certainly a lot more than was evident five years ago.

“Properties generating a solid return from multi-income streams, from a varied tenancy base, are attracting buyers wanting to own ‘bricks and mortar’ after becoming wary of losses and volatility in the share market.

“We feel that fundamentals such as strong demand for leasing in suburban neighbourhood shopping strips, like

Oxford Street

in Paddington, and freehold buildings in locations such as Bondi Junction and Pyrmont where potential purchasers have the security of capital growth, will only continue to fuel this sector of the market.”

in Paddington, and freehold buildings in locations such as Bondi Junction and Pyrmont where potential purchasers have the security of capital growth, will only continue to fuel this sector of the market.”

To date this year, the Colliers International Sydney ‘metro markets’ Investment Services team has sold in excess of $120 million of property destined to be placed in superannuation portfolios.

Just last week, Colliers International sold a Surry Hills building of 12 studio apartments at auction for $3.02 million, about $270,000 above reserve.

“At least 40 per cent of enquiries were from ‘mums and dads’, including the eventual purchaser, looking to acquire through superannuation,” Mr Meynell said.

“If the property holds the traditional fundamentals of multiple income streams, close to transport, in a densely populated location, and especially if it is on a freehold title, you will be knocking back the offers from the baby boomers looking to add ‘set and forget’ assets to their self-managed superannuation funds.”

Andrew Condell, Principle of advisory firm Financial Keys, said self-managed super funds are a major component of the super market, and becoming more and more prevalent.

“Certain types of investors are attracted to the greater choice and control that SMSFs allow with access to direct shares and direct property,” he said.

“Many small to medium businesses are using their funds as a way to acquire the business premises.

“Since 2007, SMSFs have been allowed to use loan funds to acquire investments. Recent changes to the rules limit each super fund ‘Limited Recourse Lending Arrangement’ to the acquisition of one asset.

“This means the lending arrangements are more suited to property purchases rather than share portfolios. 

“Super funds are taxed at 15 per cent on earnings and 10 per cent on capital gains for assets sold after 12 months.

In the pension phase the tax rate is zero on earnings and capital gains. The low tax rates are a big part of the reason more SMSFs are being used to acquire property. Access to additional funding and asset protection are other reasons.”

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