Baby Boomers with SMSFs Leading the Charge, but Buyer Beware

By Peter Sarmas on 11 Sep 2013
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Wealthy baby boomers are using self-managed super funds (SMSFs) to hustle in on traditional first home buyer price ranges in Sydney and Melbourne.

Ray White Elizabeth Bay’s Laura Bitar estimated that the number of investors using their SMSFs to purchase a property has doubled since last year, while the number of first home buyers has halved.

”At auctions, the investors are definitely outbidding the first home buyers,” Ms Bitar told the Sydney Morning Herald.

Indeed, the recent popularity of real estate amongst cashed up baby boomers has likely stemmed from current record low interest rates set by the RBA and a recent resurgence in capital market property values.

According to RP Data/Riskmark’s August Hedonic Home Value Index,  capital city dwelling values rose a further 0.5 per cent in August, taking the cumulative recovery in residential home values to 7 per cent since the market bottomed out in May last year.

In addition, Riskmark CEO Ben Skilbeck said mortgage borrowing costs are currently less than half of the year-on-year rental returns generated in some markets such as Sydney, which is making property investment an enticing proposition for those with a bit of extra cash in their super.

“While the owner-occupier segment of the market is more than twice the size of the investor segment, there continues to be a number of indicators suggesting that this spring investors will be punching above their weight,” he said.

Mr Skilbeck added that established properties are where most investors are looking to invest. “The rate of growth in lending commitments for the purchase of existing dwelling continues to be material higher for the investor segment than the owner-occupier segment.”

Unsurprisingly, the number of investors using SMSFs has also climbed in the last 12 months. The Australian Prudential Regulatory Authority released data this week that shows the number of self-managed super funds increased by 7 per cent to 509,362 over the year to June 30 from the previous financial year.

”In the right hands, SMSFs can be very effective retirement savings vehicles,” ASIC Commissioner Peter Kell said in a speech in April. ”In the wrong hands, however, SMSFs can be high-risk.”

Currently, those pushing real estate in super can be anyone from developers, mortgage brokers, and real estate agents to self-described property ‘researchers’ and ‘specialists’. Those baby boomers seeking a comfortable retirement may find themselves being courted by fly-by-night real estate ‘spruikers.’

For this reason, if you are considering investing in a SMSF, always seek professional advice from at least two or three qualified financial advisors.

The information or opinions contained in the commentary are general in nature and should not be construed as investment advice or financial product advice. Any research or analysis contained within the commentary is specific to the execution of a purchase brief provided by a licensed adviser. Peter Sarmas is not licensed to provide advice on regulated financial products and the information should not be relied upon to in determining the appropriateness of SMSF property purchases.

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About the Author

Peter Sarmas is a Certified Property Investment Advisor (PIAA) and Vendor/Buyer Advocate. Before becoming the founder of Street News, Peter completed a Degree in Applied Science (Chemistry) and a Graduate Diploma in Property Valuations (Hons). Peter believes property investing is a major and potentially risky undertaking. In his view, everyone should have an independent person acting on their behalf when seeking property investment advice.

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