Property no longer super

Westpac rules out putting savings in real estate

WESTPAC has become the last major bank to slam the door on lending to self-managed super fund owners who want to plough their savings into investment properties.

The nation’s second-largest bank – and the country’s largest lender to property investors – said it would no longer sell loans to self-managed super fund (SMSF) owners for property investment from the start of August.

It will also withdraw from its business lending to SMSFs.

The move comes amid rising scrutiny on the surge in Close Change self-managed super funds borrowing large sums of cash to plough into investment properties, as falling house prices and stalling rents reduce earnings.

The Productivity Commission’s latest report on the $2.6 trillion superannuation sector says the rise in borrowing through super funds to invest in property was not a systemic concern to the system but warranted further monitoring.

However, the SMSF manoeuvre has copped heat from many in the banking sector and Labor Treasury spokesman Chris Bowen (pictured) recently raised concerns SMSF borrowing had grown by more than 860 per cent since 2012.

“We continually review our products and services to ensure they meet the requirements of our customers,” a Westpac spokesman said yesterday. “We will continue to service and support our existing customers.”

The latest figures from the Australian Taxation Office reveal the number of do-it-yourself super funds that have borrowed from the bank to invest in property has doubled over the past five years to more than 50,000 accounts.

Now, almost one in 10 SMSF owners has accessed limited recourse borrowing arrangements, which are mostly used to fund property investments.

SMSF borrowing for property has ballooned from $2.5 billion in 2012 to more than $25 billion this year.

Although the total rate of borrowing does not have analysts worried yet, the high gearing of individual funds that have bought investment property leaves thousands of SMSFs vulnerable to a housing downturn.

The 2014 financial system inquiry recommended banning SMSFs from borrowing to invest in property. It was the only one of 44 recommendations that the Turnbull Government ignored.

Self-managed super funds now make up almost 30 per cent of the $2.3 trillion super sector.