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Buying Property with Superannuation

Buying an investment property is often high on the wealth wishlist for Australians of all walks of life.

But unlocking the spare funds to make the purchase can often be a challenge.

Many would-be property investors are turning their attention to superannuation as a possible funding channel to build a property portfolio. However, when it comes to buying property with superannuation, there are a number of key points to consider and requirements to meet before you’re able to sign on the bottomline.

Can you buy investment property with superannuation?

While every working Australian has superannuation – not everyone can buy an investment property directly via their super.

It is only self-managed super funds (SMSFs) which allow for direct purchase or investment in residential property.

You can still have indirect exposure to residential investment property via retail, corporate or industry super but this is usually done via the fund’s own allocation of shares in listed property trusts or through diversified property portfolios.

SMSFs have grown in popularity over the years as more Australians look to take greater control of their finances. And as SMSF trustees have accumulated significant wealth within their funds, residential investment property can become an asset class of interest.

In order to buy residential investment property with superannuation there are a number of regulatory boxes to tick. These include meeting the “sole purpose test”, which specifies the purchase must be undertaken in order to provide retirement benefits to members of the SMSF.

In addition, the investment property cannot be bought from a related party of a member of the fund. It must also not be lived in or rented by a member of the SMSF or any of the fund members’ related parties. An SMSF however can acquire a business premises or commercial property from a member of a super fund.

Borrowing to buy property with superannuation

If an SMSF trustee does not have enough cash to buy the residential investment property there may be borrowing options available through the fund to help make the purchase.

Some financial institutions offer limited recourse loans in super. Such loans mean the lender can only take the investment property back in the case of non-payment of the loan and no other assets of the super fund can be used to support the security of the transaction. The amount of the investment property cost that lenders are prepared to loan can differ significantly.

Is buying property with superannuation the right strategy for me?

I’m seeing more people in their 40s looking to buy property with superannuation. They may be at the stage of having accumulated a reasonable amount of assets in their SMSF and wanting to diversify their investment portfolio. Often they already own an investment property outside of super, are comfortable and familiar with this asset class and are looking at a long-term position.

Buying an investment property through superannuation will require professional attention and assistance particularly around structures, tax and liquidity. For example it will require the establishment of a bare trust in the first instance.

And like with any valuable asset, insurance (ie landlord insurance in the case of investment property) is a key consideration.

Ultimately, deciding on whether buying an investment property with superannuation is right for you comes down to how well it fits within your overall wealth strategy.

This can be a complicated area and therefore it’s vital to speak with a financial adviser well in advance.

Adrian Frinsdorf is the Director of Wealth Advisory at William Buck.


Insurance issued by AAI Limited ABN 48 005 297 807 AFSL 230859 trading as Terri Scheer. Read the Product Disclosure Statement before buying this insurance and consider whether it is right for you. Contact Terri Scheer on 1800 804 016 or visit our website at www.terrischeer.com.au for a copy. The Target Market Determination is also available.

The information is intended to be of a general nature only. Subject to any rights you may have under any law, we do not accept any legal responsibility for any loss or damage, including loss of business or profits or any other indirect loss, incurred as a result of reliance upon it – please make your own enquiries. This article has been prepared without taking into account your particular objectives, financial situation or needs, so you should consider whether it is appropriate for you before acting on it.

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