What's driving the surge in SMSF use?
Australians are increasingly using self-managed superannuation funds (SMSFs) to invest in property, with significant growth over the past two to three years.
Data from the Australian Taxation Office (ATO) shows that between the June quarters of 2021 and 2024, SMSF allocations to residential property rose 26.4% to reach $55.2 billion, while non-residential property allocations grew by 25.0% to $102 billion.
Shore Financial chief executive Theo Chambers (pictured) attributes the rise in SMSF property investments to two main factors: improved access to SMSF lending and dissatisfaction with the performance of traditional superannuation funds.
“Previously, obtaining SMSF property loans was challenging,” Chambers said. “Now, lenders are offering more competitive rates and terms, including higher loan-to-value ratios of up to 90%,” Chambers said.
He added that some lenders now consider future super contributions when assessing borrowing capacity, which can be advantageous for self-employed borrowers who may have irregular contribution histories.
Another factor driving SMSF property investment is discontent with returns from conventional super funds. Chambers noted that while the All Ordinaries index has only recently surpassed 8,000 points, it was close to 7,000 points before the global financial crisis over 15 years ago, reflecting relatively modest growth.
“Many Australians are frustrated with their super fund performance and are looking for alternatives,” he said.
Meanwhile, some funds have struggled to meet ASX index benchmarks in recent years, with a 2023 Australian Prudential Regulation Authority (APRA) report finding that one in five funds had significantly underperformed. APRA’s analysis also pointed to issues such as overcharging and unfair practices within some funds.
Research from the University of Adelaide supports the trend, showing that SMSFs outperformed APRA-regulated funds by an average of 4.1 percentage points during the 2021-22 financial year — the largest gap observed in the six years of the study.
Chambers said that SMSFs now appeal to a broader range of investors, as setup costs have fallen.
“People used to feel they needed $500,000 or more to justify an SMSF, but with lower costs from competitive accountants and planners, individuals can start considering SMSFs with a balance of $150,000 to $200,000,” he explained.
A key advantage of SMSF property investing is the ability to leverage funds. By using superannuation to cover a deposit, SMSF investors can purchase a larger asset, amplifying potential returns compared to putting the same funds into shares or managed funds.
“SMSF investors using $200,000 in super to buy a $1 million property are achieving capital growth on the $1 million, not just the $200,000,” Chambers said.
SMSF investors are not limited to residential property. Under ATO rules, they can also buy commercial property, including premises they can lease to their own businesses, effectively routing rental income back into their SMSF.
Chambers also noted a growing interest in commercial property syndicates, where SMSF members pool funds to invest in large-scale assets such as shopping centres.
In addition, SMSF loans are structured as limited-recourse borrowing arrangements, which Chambers says provide an added layer of financial security.
“Limited-recourse borrowing via an SMSF doesn’t affect serviceability for traditional loans outside super. This allows investors to buy property through their SMSF without impacting their ability to secure personal loans for other goals,” he said.
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