A rising number of Australians are setting up self-managed superannuation funds (SMSFs), and the opportunity to buy property appears to be a key driver of this trend. 

The latest data from the Australian Bureau of Statistics shows there were a net 20,030 SMSFs set up over the 12 months to March 31 this year.

This compares to a net 10,971 SMSFs set up in the 12 months to March 31, 2023. That’s an 82.5% increase. 

Meantime, a recent survey of 2,000 Australian investors conducted by online trading brokerage, Stake, found the two most common reasons for setting up SMSFs were to have more control over investments and the ability to buy an investment property. 

And it seems more people are thinking about this at a younger age. The ATO data shows that the median age of all SMSF members is 62 years but the median age of new SMSF members is 46 years. 

Australian property has proven itself to be a reliable asset class for long-term wealth generation. So, it’s not surprising that more people are thinking about buying property through their super, especially if they’ve got a couple of decades of savings ready to serve as a deposit right now.   

Most Australians want to buy their own home first. That’s the Great Australian Dream and it’s usually the priority.  But once that’s done, many people also aspire to buy an investment property as a way of building wealth for their retirement down the track. 

Property is one of the easiest investments to understand and it’s certainly delivered reliable capital growth over many decades. 

But for people who are paying off a home loan, saving the deposit for an investment property from spare income can take a very long time. Additionally, today’s higher interest rates mean it is harder to meet lenders’ serviceability criteria to get the finance you need. 

So, using superannuation money for a deposit is understandably appealing. 

Currently, there is $49.9 billion invested in residential property and $91.9 billion invested in commercial property via self-managed superannuation funds in Australia. 

People can borrow through their SMSFs to buy property using a type of loan called a limited recourse borrowing arrangement. The interest rate is typically higher than normal home loan rates. 

The SMSF rules relating to residential properties are pretty strict. Neither you nor any relatives can live in the property.  All of the rental income must flow back into the SMSF. The costs of maintaining the property, such as strata fees and insurance, have to be covered with money from the SMSF. 

SMSFs are certainly not for everyone. Only 1.15 million Australians – or about 4.25% of the population – have a SMSF. 

The median value of a typical SMSF in Australia is $826,299, according to ATO figures. That’s vastly larger than the median balance of all superannuation accounts, which is only $57,912. 

So, it’s fair to say SMSFs are more common among wealthier Australians at the moment. That’s not surprising given they are costly and time-consuming to manage.

So, if you’re considering setting up a SMSF to invest in property, it’s really important that you research the positives and negatives, and seek professional advice before going ahead. 

By John McGrath, Chief Executive Officer of McGrath Estate Agents. 

For more information including articles, checklists, guides and more visit McGrath’s Insights Centre.

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