Australian Property Investors Turn to SMSFs for Borrowing in 2024

Australian property investors increasingly use self-managed super funds to finance investments, driven by borrowing limits and expected price growth, with implications for the housing market and superannuation system.

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Australian Property Investors Turn to SMSFs for Borrowing in 2024

Australian Property Investors Turn to SMSFs for Borrowing in 2024

In 2024, a growing number of Australian property investors are increasingly borrowing through self-managed superannuation funds (SMSFs) to finance their investments. This trend is driven by personal borrowing capacity limits and the expectation of continued property price growth across the country.

According to industry experts, many property investors have exhausted their personal borrowing capacity and are now turning to their SMSFs as an alternative source of funding. SMSFs allow investors to borrow money to purchase property, subject to specific rules and regulations.

The Australian housing market has demonstrated sustained resilience, with high profit-making sales and rising median gross profits in the December 2023 quarter. Median house price growth is expected to reach 5% nationally this year, with smaller capital cities like Perth, Brisbane, and Adelaide projected to see stronger gains of up to 16%, 10%, and 10% respectively. Sydney and Melbourne are expected to experience more moderate growth of 4.5-9% and 0-4% respectively.

Factors contributing to the market's resilience include strong migration, limited supply of new and existing housing, and reduced competition from first-home buyers. However, affordability concerns, especially in Sydney, are expected to limit the pace of price growth. The risk of distressed selling is also rising as household savings buffers are depleted and the job market slows down.

Why this matters: The increasing use of SMSFs for property investment borrowing highlights the ongoing demand for real estate investments in Australia, despite personal borrowing constraints. This trend could have implications for the superannuation system and the broader housing market, as more investors leverage their retirement savings to acquire property.

As of June 2023, there were 27,110 new SMSFs set up and 10,741 wound up in the previous 12 months, resulting in a net increase of 16,369 SMSFs. The total value of SMSF assets is just under $914 billion, with SMSF borrowings totaling $26.2 billion. While residential and commercial property represents a small portion of the overall SMSF portfolio, the growing use of SMSFs for property investment borrowing in 2024 underscores the continued appeal of real estate as an investment option for Australians.

Key Takeaways

  • Australian property investors increasingly use SMSFs to finance investments due to borrowing limits.
  • Australian housing market remains resilient, with 5% national median price growth expected in 2024.
  • Smaller capital cities like Perth, Brisbane, and Adelaide projected to see stronger price gains up to 16%.
  • Affordability concerns and risk of distressed selling may limit price growth, especially in Sydney.
  • SMSF assets total $914 billion, with $26.2 billion in borrowings, highlighting property investment appeal.