Interesting article out yesterday revealing the largesse local developers are now showering brokers and spruikers real estate advisers (I hesitate to call them financial advisers for obvious reasons) with to help move unsold stock from upcoming off the plan apartment developments.
15%! – when a commission number like that gets bandied around you know there is going to be trouble.
Armed with these new developments, I’ll draw attention to one of the favored tools used when closing the deal and scoring a big commission, the Limited Recourse Borrowing Arrangement within a Self Managed Super Fund.
Here’s a graph highlighting the increase in the use of borrowed funds from last year’s ATO SMSF report:
Blind freddy not required here to see a trend developing.
Now, thankfully there has been some changes in legislation that may have some impact on the ability for the less scrupulous to guide unsuspecting property punters into their own slice of sky – namely the recently repealed ‘accountants exemption’ to provide advice around setting up an SMSF.
Now let’s be clear here, I’m not pointing the finger at accountants.
More to the point by forcing anyone who provides advice on the creation of an SMSF for a client to either be licensed to give that advice, or find someone that can, it is slowly removing avenues for property spruikers to access the super system in return for these tantalising exorbitant commissions.
Now I should point out here that LRBA’s can be an effective tool in SMSF’s, particularly in small business where the family shop / warehouse is brought into the fund and back rented to the company. For suitable situations, it’s a terrific strategy.
However, for everyone else, it’s obvious that the marked growth in LRBAs (particularly for the $200k – $500k segment) would be a concern to a regulator already concerned with the height of real property prices currently.
Once again, it’s easy to see that a 20% pullback in apartment prices in even a moderately geared investment would wipe out a couples collective retirement savings over 10 years or more.
Pretty scary stuff.
I am sure I’m not the only one waiting to see whether the mid July report from the ATO yields a drop in LRBA’s, or you can be sure more regulation is on the way.