Tax and legal advice
Andrew Crossley

Getting the right SMSF property advice

By Andrew Crossley

How can you ensure the advice you're receiving benefits your portfolio and not a spruiker's bottom line? 

Blogger: Andrew Crossley, Australian Property Advisory Group

In recent years there has been considerable publicity regarding purchasing property – both residential and commercial – in a self-managed super fund (SMSF). According to the latest Australian Prudential Regulation Authority (APRA) figures, SMSFs now account for approximately one third of total superannuation assets in Australia.

According to the Australian Securities and Investments Commission (ASIC), the primary reasons for establishing an SMSF include a desire to control investments and lower costs. Despite their booming popularity and apparent appeal, this structure is not suited to everyone, and anyone wanting to set up an SMSF should seek out appropriate advice.

The Australian Taxation Office (ATO) is increasing its compliance activities on this front due to the growth of the SMSF sector in Australia in recent years. ASIC has regulated this market, treating an SMSF as a financial product – so anyone providing advice on an SMSF should have an Australian Financial Services Licence (AFSL).

Most AFSL holders though are not in a position where they should be providing advice on specific property. If an AFSL holder is helping you establish an SMSF for the purposes of investing in real property, they can refer you to a property professional to help with sourcing an investment, or you can source it yourself.

If you choose to seek out a professional, make sure they don’t already have a property lined up ready to sell you; instead, source properties for you or your SMSF after first understanding your individual needs and situation.

The professional who’s helping you source properties for your SMSF should openly disclose their fees, commissions and any vested interests. All too often investors in or out of an SMSF structure go through someone who should not ethically be guiding that person to make a decision.

This opportunity to assist investors in acquiring property for their SMSF has been widely exploited by property sales companies and spruikers. They typically run seminars where they deliver many purported positive points about the SMSF industry and having an SMSF. There are numerous reports of spruikers promoting SMSFs as a vehicle in which to purchase property through, and this is where it gets dangerous and where consumers need to be very careful.

Non-AFSL holders cannot provide financial advice. Typically, property sales companies and spruikers do not possess this licence and are not allowed to provide advice on SMSFs. More broadly speaking, the growing consensus is they should not provide advice on property investing anyway.

This makes sense because, in a majority of cases, they are representing the seller/developer(s) and are engaged to promote a project (sometimes up to seven projects at once). They are paid commissions and sometimes attractive bonuses and other incentives to promote one type of property or location over another.

This phenomenon has given ASIC cause for concern. ASIC, the way I see it, has several concerns, the biggest of which could be whether the investor has received appropriate and adequate advice.

Pitfalls of purchasing property through a spruiker
The three property types commonly purchased in an SMSF are:

* An existing dwelling
* A newly constructed dwelling similar to a house and land package, but with different purchase contracts (referred to as 10:90 contracts). It is normally 10 per cent down and the rest at settlement
* An off-the-plan contract. Normally a five per cent to 10 per cent deposit is put down and the balance is paid from 12 months to three years later

From a lending perspective, two of these three types of properties have led to problems and concerns – newly constructed and off-the-plan contracts. Investors too are cottoning on to the inherent risks of spruikers getting involved in these property transactions.

Off-the-plan properties and 10:90 contracts are ‘new’, sold by a developer usually via a spruiker or marketing company. The developer pays commissions of five per cent-plus and bonuses to spruikers to flog this stock, but these often aren’t disclosed to the end investor.

Recently, most lenders who were previously providing finance to an SMSF structure have ceased providing finance for a property that is being sold by the developer, whether via a spruiker, or even through a real estate agent. They prefer the property to already be second-hand stock. This leaves just a handful of lenders able to lend on new properties.

This loss of lending appetite is mainly due to a couple of reasons:

* The abundance of bad and improper advice being provided by spruikers who have no entitlement or qualification to provide it

* The amount of commissions, often undisclosed, and bonuses involved in the transactions. This regularly leads to valuations not stacking up. When this happens, lenders have wasted their time with the whole assessment because it will no longer proceed to settlement. Should they choose to proceed, the lender risks implicating themselves in poor practice. It could then be argued they were complicit in the SMSF failing to comply with the Superannuation Industry (Supervision) Act (SIS Act)

All of these changes have caused some SMSF investors concern. How will they obtain finance when their off-the-plan property is finished and they need to settle? What if more lenders pull out of this market? This could currently be one of the biggest concerns for investors.

Numerous lenders have implemented new policies in line with advice they have received on the sector and what they perceive to be ‘responsible lending’ – such as requiring that a minimum of $150,000 already be in the SMSF and that a 10 per cent balance remains as a buffer.

Lenders providing finance to SMSF structures have become even tougher. The loan-to-value ratio is generally limited to 80 per cent. The lender assesses the loan to ensure it stacks up in its own right.

As a result of a small number of people conducting unethical operations, purchasing a property through your SMSF is becoming increasingly complex. Even if you receive suitable advice about whether or not an SMSF is appropriate for you and how to go about setting up the structure, you will potentially be wading through yet another minefield when trying to buy a property in a good location with all the salient features that need to be considered when investing in a property.

To ensure success in this complex area of investing it is important that you understand the rules and regulations and know how to spot a spruiker.

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About the Blogger

Andrew Crossley

Andrew Crossley

Andrew Crossley is a property investment advisor and property advocate and the founder of Australian Property Advisory Group, specialising in representing the buyer not the seller. He is also the author of the #1 International Amazon Best Seller ‘Property Investing Made Simple’ comprising of the 7 key tips to reducing property investment risk and create real wealth. (Busybird Publishing, $24.95). For more information visit www.australianpropertyadvisorygroup.com.au

 

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  ["title"]=>
  string(51) "Boost for investors as app sets up off-site bidding"
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  string(144) "

Property investors are now able to identify and bid on auctions remotely using a new live-streaming functionality launched by Gavl.

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Called “Request an Auction”, the new functionality enables users to watch and bid on any Sydney or Melbourne auction remotely.

Through Gavl, prospective buyers are now able to register to bid on their preferred auction. The platform will obtain permission from the listing agent and confirm within 48 hours.

Vendors can also request to have their auctions broadcast to a larger buyer audience.

Co-founder Joel Smith said that auctions streamed on Gavl attract 47 per cent more viewers than traditional ones.

He said that Request an Auction will be valuable for remote buyers.

“Buyers are able to have Gavl attend any auction they nominate, so they will never have to miss out on an opportunity due to logistical complications in physically attending the auction.

“Vendors, too, have the opportunity to directly book an auction with us, so they can open up their event to buyers all around the world. With more potential buyers, they’re giving their property the chance to receive more bids and maximise their sales result.”

Mr Smith said that prior to the Request an Auction app, buyers were limited to what they could achieve through the Gavl technology.

Gavl is a live-streaming and bidding platform for real estate auctions.

Mr Smith said that it has streamed more than 6,000 auctions, which have achieved 3.5 million views from 50 countries.

Gavl’s Request an Auction function is currently being offered in Melbourne and Sydney only.

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Boost for investors as app sets up off-site bidding
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Having to split her time between Hong Kong and her original base of Sydney has not slowed Julia Tita’s goal of building a high-performance Australian property portfolio. Instead the resulting alterations to her strategy have positively impacted her investing success.

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Having recently purchased her 6th property, Julia joins host Tim Neary to discuss her journey, share her ups and downs over the years, and reveal her thoughts on why some properties are better than others.

Julia also explains why she no longer makes a move without the help of a buyer’s agent, why working with a strong team of specialists is extremely important and discloses her long-term property ambitions.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

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How a move to Hong Kong impacted Julia’s Australian property goals
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  ["title"]=>
  string(88) "‘Common’ referrer practice of being paid on both sides of the fence coming to an end"
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The practice of property investment firms sharing undisclosed kickbacks among the supply chain involved in development sales will be outlawed in NSW on 1 July this year under the Real Estate Reform being handed down by regulators in NSW.

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Property commentator and valuer, Suburbanite’s Anna Porter, said the reform will address conflicts of interest.

She said they arise when a mortgage broker, accountant or financial planner receives part of the commission from the property firm, who receive their fees from the developer or seller.

“This puts the broker into a position by which they are being paid on both sides of the fence,” she said.

“Until now this has been a grey area and there was nothing stopping this practice.” 

Ms Porter said this has been a common practice in the industry.

"Some well-known mortgage broking firms openly admit to receiving $5,000–$10,000 per referral in their pocket.”

She also said this process has been going on for decades.

"Property investment firms commonly pass some of their commission on to the mortgage broker, accountant or financial planner as a reward to them for passing on the referral. This means that many brokers or financial service providers are making significant amounts of money just to refer on to a property firm, often totalling hundreds of thousands of dollars a year," Anna Porter said.

Ms Porter said the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017 will be in force from July this year, and will prohibit this practice unless the broker or referring partner also holds a real estate industry license.

"Under the new laws, if the broker takes a referral fee from the property firm, they will have to be a licensed real estate agent and also hold a corporation’s license,” she said. 

“Subsequently, every transaction that they receive a referral fee from, they will be putting their license up against the transaction and taking full liability for the conduct, practices and outcome of that transaction, even if they have little to do with the transaction; they are a party to it financially and therefore take as much risk as everyone else in the transaction.”

Mr Porter said where a referrer holds a real estate license, and receives a part of the sale commission, they may find themselves in breach of the ethical requirements under the act.

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