As the popularity of SMSF investment strategies rise among property enthusiasts, concerns around some of the products currently offered to the market have been raised by industry watchdog ASIC (the Australian Securities and Investment Commission).
Last week ASIC released a warning to consumers on its website about advertising that promotes the use of self-managed superannuation funds (SMSFs) to invest in residential properties through the National Rental Affordability Scheme (NRAS).
The NRAS is a federal government initiative, in partnership with the states and territories, that incentivizes investment in affordable rental accommodation by offering direct payments and tax offsets for landlords who build and lease properties targeted at low to moderate income tenants at a rate of at least 20 per cent below market value.
The problem is not with the scheme itself per se, but the fact that a handful of questionable operators in the finance industry have been selling it with misleading statements, suggesting that consumers can use their super fund to purchase a property within the scheme and pocket a tax-free grant of $100,000.
ASIC says, “These ads do not provide balanced messages about the features, benefits and risks of investing via an SMSF in an NRAS property. Such ads should make clear to consumers:
- that eligibility to participate in the scheme is subject to restrictions
- the likely fees associated with purchasing, tenanting and managing properties purchased from NRAS-approved participants
- that to receive a total financial incentive of $100,000, consumers will need to remain in the scheme for 10 years, and
- that they will be required to rent out the NRAS property at 20% below the market value to eligible tenants.”
The problem is that it’s not necessarily you, the investor who will be the end recipient of the promised $100k windfall. Rather, this incentive is offered to the “approved participants” within the NRAS program that individual investors must use to access the scheme.
ASIC says investors need to be aware of the fact that these “approved participants” are under no obligation to pass on the scheme’s associated financial incentives and that any payments made in the first instance will be entirely dependent on their level of compliance with specific conditions.
In other words, getting your hands on that $100,000 sweetener is not as black and white as some of these less than scrupulous operators would have you believe.
“If you are approached about using an SMSF to invest in an NRAS property, or any property for that matter, check that the person you are dealing with is licensed to provide financial product advice by searching ASIC’s public register of AFS licensees or authorised representatives. You should also do your research and consider whether the investment is appropriate for your retirement objectives,” cautions ASIC.
ASIC Commissioner Greg Tanzer said, “Consumers need to be cautious when presented with claims which appear too good to be true and should do their research before investing. Consumers should think carefully about how long they intend to hold the NRAS property, ensure that they understand the income and capital potential of an NRAS property and satisfy themselves that it fits with their investment purpose.”
Essentially, as with any type of acquisition you might be considering to complement your overall investment strategy, the onus lies with you, the investor to ensure you have all the facts at hand when making decisions around a potential product for your SMSF.
Seek objective advice from a qualified and experienced financial planner and don’t be influenced by flashy promotions or promises of financial windfalls.
If you’d like to talk more broadly about your investment goals, please Click HERE to Request a FREE Consultation with Our Team.
First and foremost, properties must align with your long-term financial objectives. If you have a watertight strategy that’s structured to maximise your returns and minimise your risks, there is far less chance of falling victim to the shallow promises of smart SMSF product spruikers.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).