Real estate is where two of five SMSFs are invested

Reports by the Financial Services Council and the UBS show that two in five SMSFs are invested in residential and commercial properties; still a minor proportion of the funds’ overall portfolio.

Surveys made by the two sources reveal that the fraction of super funds that are into residential property ownership rose by 3% this year from last year’s 19%. Commercial property rights, on the other hand, rose to 20% from last year’s 18%, not including listed property trusts. Fund trustees that are into properties also have major investments in properties outside super.

Over 44% of super trustors said their retirement income will come from property investments; higher than the 34% who said their retirement funds will be boosted by share investments. These findings support the investors’ pursuit for assets with higher returns amidst low-interest rates. The price surge in properties along the country’s east coast also contributes to this venture.

However, returns from the increasing interest in properties (e.g. houses, apartments, factories, and office spaces) may suffer from market corrections. Lending policies of banks may also have adverse effects on the return rates. Just recently, the Commonwealth Bank of Australia joined the group of banks who have increased their mortgage rates and interest-only loan policies for property investors.

A major change in fund diversification is the proliferation of DIY products that lets investors own international market shares, jumping from 23% of fund investments last year to 30% this 2016. An increasing number of funds have also been put into exchange-traded funds or ETFs, which follows an index just like stock or bond indices.

The attractiveness of said investment schemes has increased the awareness of trustees on the need to diversify their funds and shy away from the condensed Australian market. These findings also suggest that investors are becoming more concerned with fees of low-cost, low-return products like ETFs.

News that new restrictions on super contributions are to be enforced this coming July 2017 might make it difficult for incoming retirees to solely depend on their super funds for income. A study by UBS reveals that 27% of respondents say they need AU$1.5 million of savings to live comfortably in their retirement. The findings show that an average of AU$1 million is required for a comfortable retirement.

Starting this July 2017, the pre-tax amount that individuals can put into super will fall to AU$25,000 – a downturn from the average AU$30,000 to AU$35,000, depending on the age of the investor. Post-tax contribution limits will also fall to AU$100,000 from the previous AU$180,000.

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