The popularity of geared investments amongst SMSF trustees has increased dramatically, with the number of funds borrowing to invest more than doubling in the past two years.
Of Australia’s 428,000 SMSFs, 29,000 were invested in geared products in April 2010, up from 13,500 in July 2008, according to the survey of almost 3000 trustees, planners and accountants.
About 75,000 trustees were intending to use geared products in the next 12 months, and half of those planned to gear into property, with the other half split between products such as shares, warrants and managed funds. More than half of trustees said they were unlikely to use geared products.
Planners and accountants are both increasingly likely to recommend geared products to their SMSF clients, said Investment Trends analyst Recep Peker.
Two thirds of planners intended to place at least one SMSF client into a loan product in the next 12 months, and believed that although only 7 per cent of SMSFs currently borrowed, close to a quarter of all SMSFs were suitable for geared investments.
The main uses for geared investments within SMSFs were commercial property and direct residential property, according to surveyed planners.
“Among planners who advise SMSFs, 41 per cent say that they intend to recommend a loan into property when they next advise an SMSF client on a geared investment strategy. In contrast, only 13 per cent intend to recommend a loan into shares,” Peker said.
Gearing also had support from just over half the accountants surveyed, although they also cited problems with loan providers such as non-compliance, problems with trust deeds, providers not understanding legal requirements and complicated paperwork as a hindrance to the use of gearing.
