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.
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.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.