Commercial SMSF Funding is Still Available with ThinkTank
Over recent months, the spotlight once again turns to SMSF loans with the withdrawal of a number of lenders providing financial accommodation under Limited Recourse Borrowing Arrangements (LRBA's).
Often mentioned in analysis of SMSF portfolios is the growth in LRBAs, which have gone from a modest $2.5 billion in June 2012 to $31.4 billion in December 2017. This rate of growth received a good deal of attention in the Murray Financial System Inquiry (FSI) but largely ignores the small percentage that it represents of Total Assets. These LRBAs are secured mostly by Direct Property, both Residential and Commercial and of these assets it represents just 19.2%. It is expected that this number will continue to grow, in large part because of the considerable benefits associated with long-term owner-occupied investment in 'business real property' within an SMSF. The potential advantages of such an investment for retirement planning are significant in the current low growth environment.
From our own experiences, we note that most growth is in Commercial Property asset class with owner-occupiers looking at long-term investment strategies combined with security of tenure. While lenders report an extremely low rate of arrears on this type of loan, the protection provided to business owners if things do go wrong is considerable with the equity acquired in owner-occupied premises protected from creditors and/or administrators, which is exactly as intended for superannuation savings.
For those that have compliant LRBAs secured by business freehold assets and believe that their present lender may not be motivated to continue their current facilities, the option remains open to refinance existing facilities including the cost of the exercise. Additionally, the cash flow shock from rolling over from an interest only to a short term P&I facility, or reduced concessional contributions can be substantially alleviated by refinancing into an extended loan term.
Thinktank will provide a standard 25yr loan term, with 30 years term on request, thus reducing monthly repayments from a standard 15 or 20 year term and allowing the fund to build a higher level of liquidity for further investments.
For information on regards to the state of the SMSF market please click on the attached link.
Quarterly Market Update
Please click here to read up-to-date views on the state of the Australian commercial property market seen in light of recent global economic and financial market developments by Thinktank's Per Amundsen.
Please do not hesitate to contact me or your respective Relationship Manager should you have any questions on any of our commercial loan products or to workshop a potential commercial matter.