As the federal government looks for solutions to help first home buyers, the latest Class SMSF Benchmark Report has found that SMSFs are unlikely to be contributing significantly to rising prices, given their very small share of residential properties.
The SMSF Benchmark Report for the December 2016 quarter, based on an analysis of over 125,000 funds administered on Class, found that SMSFs owned less than 1% of residential properties in Australia, compared to the 22% owned by non-SMSF investors and the 68% held by owner occupiers.
SMSFs own a very small percentage of residential property
Source: Class, RBA
That SMSF market share of residential property represents about $64 billion of the $6.7 trillion estimated value of the total residential market.
Some commentators have expressed concern about the exposure SMSFs may have to property as a proportion of their total assets, particularly if there is a downturn in property markets or if interest rates rise.
However, SMSFs as a group do not appear to be highly exposed to property investments. Almost 73% of SMSFs (by number) do not hold any direct property at all, either residential or commercial.
And their indirect exposure to property through listed and unlisted trusts, at an estimated 7%, is not dissimilar to the exposure of APRA funds at 9%.
Those SMSFs that do hold direct property have a very significant exposure to it – about half the fund on average is made up of direct property, with proportionally less exposure to other asset classes than funds which don’t have direct property. Interestingly though, they have a spread of other assets and are not just made up of cash and direct property as is sometimes assumed.
These figures are worthy of further discussion and analysis but we should not simply conclude that the members of these SMSFs with direct property are overexposed to this asset class. Many of the members of these funds would have investments outside of their SMSF as well, so you would need to look at the totality of their wealth to be able to draw conclusions about the risks they are taking.
Australians love property, but the nearly three quarters of SMSFs without direct property holdings are clearly not letting that dictate their asset choices. With barely 1% of residential properties owned by SMSFs, policymakers need to look elsewhere for solutions to help first home buyers.
The Class SMSF Benchmark Report can be downloaded here.