investing in property with superannuation may 2010
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Some property investment options for superannaution fund investors.TRANSCRIPT
Investing in property with superannuation
Andrew Hayes
This document has been prepared by Wealth Engine Pty Ltd ABN 38 142 579 an Authorised Representative of WealthSure Pty Ltd AFSL 238030 and is intended to be a general advice only.
The document is not intended to be comprehensive and should not be relied upon as such. In preparing this document, we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained in this document to particular circumstances.
Wealth Engine Pty Ltd, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained in this document.
General Advice Only
Superannuation is an investment structure designed to provide money for your retirement. (Sole purpose test)
Superannuation is not an investment itself.
It is a special type of trust, that the government has given concessional tax treatment to, in order for Australians to provide for their own retirement rather than rely on the age pension.
Has a full set of legislation governing what it can and can’t do. Superannuation Industry Superannuation Act (1993)
Understanding superannuation
Industry Super Funds. Traditionally run by unions along industry
lines eg CBUS for construction and building, HOSTplus for Hospitality, HESTA for Healthcare workers.◦ Low cost◦ Not for profit◦ No advice or advisor attached◦ Accumulation based, some pensions offered◦ Market based choice of investment.
Types of superannuation funds
Public Sector Super Government owned and funded, either state
or federal eg NSW State Government SSS, Commonwealth CSS◦ Not for profit◦ Low cost◦ No advice or adviser attached◦ Either accumulation based or defined benefit◦ Can have pension accounts◦ Only accumulation schemes have market based
choice of investments.
Types of superannuation funds
Corporate Super Funds Employer chosen and sponsored. Usually master fund/trust based though still
some significant company run funds eg Telstra.◦ For profit. Eg MLC, Colonial, ING, BT ◦ Have adviser attached◦ Still relatively low cost.◦ Accumulation based◦ Market based choice of investment
Types of superannuation funds
Personal Super Funds Chosen by you. Master fund/trust based eg BT Super Wrap,
Macquarie, MLC Masterkey, AMP Flexible Lifetime◦ For profit◦ Advisor attached◦ Higher cost◦ Accumulation based with option to roll to a
pension.◦ Wide and deep market based investment choice.
Types of superannuation funds
Self Managed Super Funds (SMSF) Set up and run by the members (up to 5). Directly regulated by ATO. Can use any type of investment platform.
◦ Not for profit◦ Advisor attachment optional◦ Highest cost◦ Accumulation and pension accounts available◦ Widest and most flexible investment choice.
Types of superannuation funds
Superannuation funds, including self-managed super funds (SMSF), have always been able to invest in property.
Only defined benefits funds do not give you a choice of market based investments.
Investing in property using super
Long term asset class returns 20 years to December 2007.
Listed Property Securities. Unlisted property trusts and syndicates. Managed Property Funds. Business Real Property. Residential Investment Property. Property Warrants.
Types of property investments available
Listed property securities are managed investment schemes and companies that are traded on the ASX and can include.◦ Real Estate Investment Trusts (A-REITS) eg
Commonwealth Office Fund (CPA), ING Industrial Fund (IIF).
◦ Property Development/Management companies.eg Mirvac Group (MGR) Stockland (SGP).
◦ Stapled securities which usually contain a share in the management company and a unit in the property trust. Eg Westfield Group (WDC)
Listed Property Securities
Are managed investments which are not listed on the ASX.
Are very diverse everything from caravan parks (Aspen Village Fund) to single/small building offers (Invetsa Fifth Commercial Trust)
Unlisted property trusts and syndicates
Are diversified investment funds investing in listed property securities.
Can be actively managed meaning the manager is trying to add value through the timing of their sales/purchases and security selection or passive meaning they invest according to the index weightings and only buy or sell when the index changes (low portfolio turnover)
Actively managed funds include UBS Property Securities Fund.
Passively managed funds include Vanguard Index Australian Property Securities Fund.
Managed Property Funds
Can be any business property. Doctor’s suites, Lawyer’s Chambers, Office
Suites, Industrial Units, Factories, Shops. The superfund can lease the property to the
member’s business on a commercial arms length deal.
Business Real Property
Cannot be leased to a member of the fund. Must be commercial arms length deal. Must be included in the funds Investment
Strategy. Generally available in SMSF with very large
balances.
Residential Investment Property
Are a way of borrowing in (gearing) a superannuation fund.
Super Funds are prohibited from granting security (ie mortgage/lien or charge) on fund assets.
Needs a special vehicle (legal structure) to do this.
Debt Instrument Trust/Warrant Trust.
Property Warrants
SMSF Trustee
SMSF buys property
Ownership Certificate
Beneficial Owner
Mortgage of Legal
Interest
Income
Loan Loan Repayments
Lending Institution or
member
Debt instrument
Trust
Client wants to gear through super
Property/asset is held in Debt instrument for
SMSF
SMSF TrusteeOwnership Vests
Beneficial Owner
Mortgage extinguished/released
Final loan repayment
Lending Institution or
member
Debt instrument
Trust
At payment of final instalment:
•Property or asset vests to the SMSF CGT and stamp duty free.
•Security/mortgage with lender extinguisehed
In Summary Industry
Fund
Public Sector
Defined Benefit
Public Sector Accumulation
Corporate Fund
Personal Fund
Self Managed
Super Fund
Listed Property Securities
— — Some Some Yes Yes
Unlisted Property Trusts
— — — — Yes Yes
Managed Property Funds
Yes — Yes Yes Yes Yes
Business Real Property
Some Some — Rare — Yes
Residential Investment Property
— — — — — Yes
Property Warrants — — — — — Yes