Super property investments a “high-risk endeavour”

A spike in the growth of self-managed super funds (SMSFs) has seen a dramatic rise in borrowings for property by these funds, with RiskWise Property Research chief executive officer, Doron Peleg, warning it’s a dangerous road.

The 200 per cent rise in borrowing on super funds to feed into property has meant that many individuals have fallen into debt, and Peleg said the “high-risk endeavour” could force the Australian Labor Party to ban borrowing against SMSFs if they were successful in the next election.

RiskWise research showed off-the-plan (OTP) properties were popular with SMSFs, predominantly due to their suitability for tenants, but Peleg said there were risks involved.

“Many OTPs carry a high level of risk largely due to potential oversupply - leading to squashed property values, high vacancy rates and a cooler market,” he said.

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“The three major types of risks associated with over-supplied OTP high-risk suburbs are Equity Risk, Cashflow Risk and Settlement Risk and they all add up to potential disaster for the anyone staring retirement in the face.”

Peleg advised that when considering buying property through a super fund, investors must consider the loss of income if there was an oversupply in the area.

“Super is the only asset class you can leverage against but using it to buy property is definitely high risk if things go wrong and, frankly, an accident waiting to happen,” he said.