Australia's largest bank, Commonwealth Bank of Australia (ASX: CBA), will soon announce that it will no longer lend to self-managed super funds (SMSFs) for residential and office properties.
According to the AFR, Commonwealth Bank will step lending with its 'SuperGear' product from 12 October 2018. A representative said "This is part of our strategy to become a simpler, better bank. We are streamlining our product portfolio and have decided to discontinue SuperGear".
Whilst the SMSF market is relatively small, it is still a significant part of the property market, with billions of dollars of loans.
I have previously written about how SMSFs are potentially in a difficult spot because they are legally limited to the amount of money that can be added to the fund each year. This would be particularly troubling when an interest-only loan turns into a principal repayment loan.
The risk of property for SMSFs is getting higher as property prices gently decline and a potential Labor win could see negative gearing benefits reduced. This move may add another nail to the 'property always goes up' mantra.
With Westpac Banking Corp (ASX: WBC) also recently stepping back from the SMSF scene I can't imagine it will be too long before other banks follow suit. Although this could open up an opportunity for smaller lenders.
I've never thought investing in residential property in a SMSF is a good idea. Taking on debt for your retirement account and putting all your money into one single asset is not diversification in the slightest. It sounds very risky to me. A SMSF that invests in bank shares and owns an investment property is exposed to the exact same risks.
Foolish takeaway
Superannuation should be a carefully guarded nest egg that isn't exposed too heavily to a single risk, nor too defensive because cash will see purchasing power eroded away.
