House and Land Packages now Available to SMSFs SMSF Property investment without limitations
Your SMSF can now borrow to buy land and build a house on it. We offer an innovative solution to overcome the superannuation laws that only allow the use of borrowed funds to purchase a single acquirable asset.
There are very good reasons why the superannuation law regarding limited recourse borrowing arrangements (LRBA) is so strict — it’s ultimately to protect your fund’s assets. But when it comes to borrowing to purchase an asset, these restrictions can limit your investment opportunities by only allowing you to buy a single asset — meaning house and land packages are out of the question. Until now!
Borrowing for a house and land package is traditionally made up of two contracts — one for the purchase of the land and one for the construction loan — meaning it’s off-limits for SMSFs. We solve this by entering into a two-part contract to purchase the land and engage your builder on your behalf, while you enter into a one-part contract with us.
This scenario breaches superannuation laws as an SMSF cannot acquire assets from a member.
SMSFs are permitted to borrow funds to purchase investments, but to protect any other assets of the fund, the loan is classified as a limited recourse borrowing arrangement (LRBA). An LRBA works by holding the single asset in a separate trust as security for the loan, so if the SMSF defaults on their loan, only the asset funded under the LRBA can be taken by the lender. For example, if your SMSF purchased land with a loan, the land is held in a separate trust. If the SMSF then built a property on the land but defaulted on the loan, the lender will have legal ownership over the original asset — being the land — that now also contains a house. The SMSF would lose all money that had gone into building the house. This example demonstrates why improvements are restricted for any assets under finance.
To remove risk for you, finance for your SMSF loan is guaranteed at the time of signing, with an agreed valuation.