In all of the media hype around the doom of coronavirus and its economic impact, it can be tricky to see the rainbow through the cloud of misery – but Australia’s property market is shining a ray of sunshine on SMSF property investment.
If you’re still struggling to see the potential pot of gold at the end of the COVID rainbow, then keep reading, as we explore how you may be able to utilise the property market to your advantage during COVID’s lockdown phase and beyond.
Understanding which property trends could benefit your SMSF
When COVID-19 restrictions were first imposed, Australians became acutely aware of their home location. The parameters for exercise, shopping, and proximity to loved ones were brought to the forefront of our lives in a way never made more evident in our lifetimes. The real estate slogan ‘location, location, location’ took on an entirely new meaning. Consequently, the trend of homeowners paying a premium for the ability to work, live and socialise within a 20-minute drive from home has only heightened.
Some investment commentators firmly believe that 80% of a property’s performance is dependent on the location and neighbourhood in which it sits. For SMSF investors looking to purchase a residential property within their super fund, it would be wise to consider properties in liveable neighbourhoods, close to amenities, as these types of homes are predicted to outperform in capital growth.
Housing affordability does not mean property prices. In fact, the forecast for Australia’s property prices are set to continue to increase over the coming few years between 20-30%. Affordability refers to how affordable it is to take on a mortgage. With the Reserve Bank of Australia (RBA) committing to leaving the cash rate at 0.1%, the affordability of SMSF property investment has never been better than it is right now, and is predicted to be for the next three years! A lower interest rate means you can afford a better property within one of the desirable locations, and the repayments will go towards building capital growth quicker than ever before to help accelerate your retirement savings.
Strong rental income
Due to affordability, 40% of the population will soon be renters. This means that almost half the residential market will be renting. Say “hello” to consistent income that your SMSF can use to repay your SMSF loan.
Commercial Property investment opportunities for SMSFs are also clear
One of the more silent opportunities that have arisen from COVID’s lockdowns are the opportunities for businesses to establish self-managed super funds and purchase their commercial property within the SMSF.
Businesses foreclosing and the rise of eCommerce has seen a shortage of existing commercial buildings. The move to eCommerce means more warehouses are necessary. This is encouraging more owner-occupiers to buy commercial land and build. Not only can this help grow capital for retirement, but it can also help lower their overall tax bill.
Purchasing a commercial property to lease to your business isn’t exclusively for eCommerce and warehouses though! If you’re a business owner and you lease a building, this strategy could benefit you.
Effectively, if you lease your SMSF’s commercial property to your business, you would be paying rent to yourself, helping to increase your SMSF investment earnings and essentially repaying the SMSF loan. Not only that, the rental income within your SMSF is only taxed at 15%, not your marginal tax rate or the corporate tax rate.
If you’re interested in investing in property inside super, talk to us today about how you can utilise residential or commercial investment properties within your SMSF to realise your retirement dreams sooner.