Be­ware a house of hor­rors

The Advertiser - Real Estate - - Real Estate -

HOR­ROR means dif­fer­ent things to dif­fer­ent peo­ple. For some, it means gi­ant, hairy, face-eat­ing spi­ders. For me, it is the copy of the Wolf Creek DVD that lurks on my liv­ing room shelf, un­opened be­cause I’m too much of a pansy to watch it.

Hor­ror for a real es­tate in­vestor usu­ally in­volves los­ing money, and lots of it.

Luck­ily Aus­tralia es­caped the worst of the GFC where house prices in parts of many coun­tries halved in value.

How­ever, fears are grow­ing about a new hor­ror at home. Not a mas­sive crash, but ex­perts are wor­ried that many peo­ple may come fi­nan­cially un­stuck af­ter chas­ing elu­sive in­vest­ment re­turns through prop­erty in their self-man­aged su­per funds with­out do­ing their home­work.

More than 900,000 Aussies have money in SMSFs, and there has been a big push by prop­erty pro­mot­ers in the past year to get peo­ple to bor­row money within their SMSF to buy houses.

This threat­ens to spark a fresh hous­ing bub­ble that will push houses fur­ther be­yond the reach of younger Aussies, but also risks trap­ping older pre-re­tirees in a nasty fi­nan­cial sit­u­a­tion. I was pre­vi­ously a big fan of hold­ing prop­erty in a SMSF long-term to en­joy enor­mous tax ben­e­fits, but that changed when the Fed­eral Govern­ment moved the goal­posts ear­lier this year and now an un­pleas­ant tax bill may even­tu­ally bite those who buy prop­erty in su­per.

Th­ese days, I’m scared that many Aus­tralians - still spooked by the share mar­ket col­lapse five years ago - will use su­per to pump their life sav­ings, plus bor­row­ings, into bricks and mor­tar and be burnt badly if house prices fall, in­ter­est rates rise, or they get bad ad­vice from a so-called ex­pert and buy in an area with poor growth prospects.

Self-man­aged su­per is an ex­tremely com­plex area, where one mis­take could re­sult in you los­ing al­most half your nest egg in penalty taxes. It’s not some­thing that peo­ple should see as a ve­hi­cle to pile into prop­erty.

Re­tirees can­not sell part of a house to free up some re­tire­ment cash. And if Aus­tralia does get hit by a hous­ing down­turn, they may still have loans to pay on properties that have tum­bled in value.

With good plan­ning and a sound strat­egy, prop­erty in su­per can work well for some peo­ple. But just make sure it doesn’t be­come your per­sonal house of hor­rors.

An­thony Keane is the edi­tor of Your Money, which ap­pears in The Advertiser on Mon­days.

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