Property Hub - Investment Insights & Inspiration - Realty Talk Vault: Property development in your SMSF

Episode Date: November 16, 2022

We bring you another classic Realty Talk episode from the vault, which was originally published on May 31, 2021, but is still just as relevant today. For many years there has been a perception that an SMSF can’t build or develop a property, but is this really the case, and if you can, how do you do it?  Leading SMSF specialist Darren Kingdon joins Bushy to discuss cleanskin property and lending rules. RealtyTalk is part of the Property Hub podcast channel, your home for property investment insights, inspiration, and stories from Australia’s top property experts, investors, leaders, and analysts. Subscribe now to get every RealtyTalk episode delivered to you each week for free, and also get full access to Get Invested, the leading podcast for Australians who want to unlock their full ‘self, health, and wealth’ potential and get inspired by the stories of investors, founders, and entrepreneurs. Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media.  Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

Welcome. For many years, there's been a perception that self-managed super funds can't build or develop property. But is this really the case? And if you can, how do you go about it? To discuss this, I'm joined by leading self-managed super fund specialist, Darren Kingdon, who's the author of Master Your Super and a very well-respected financial planner. So good to see you again on Real Estate Talk, Darren. Yeah, thanks for having us, Bushy. Good to see you, mate.

Thanks, mate. Now, it's a really interesting subject and there have been, I think, a lot of misconceptions around this, but can a super fund develop a clean screen property? Well, the short answer is yes, but as usual, there's a few caveats with these things. And I guess you alluded to potential confusion

out there because over the years the ATO is basically the regulator of the self-managed super fund and they've provided some mixed signals about whether or not super funds are allowed to develop properties on the pretense that the trustees might be carrying on a business which is thought to be a breach of one of the covenants of the super laws but generally speaking over the last sort of 10 years or so you know the ATO sort of poured cold water on that and generally speaking it seemed to be an acceptable practice but it does depend on the manner in which you go about developing the property so for example so can a superannuation fund develop a property that already owns within the fund and the answer to that is well yes it certainly can but you can't

go and sort of add extra borrowings or securitize the asset and it'd have to be effectively self-funded so so therefore there's got to be probably contributions coming in that could cash flow the development or maybe you need to liquidate some existing assets it's got to come from within or maybe rollovers from other funds so that would be effectively how you'd be able to to do a development without any borrowings and similarly if a property was acquired on the open market by super fund same sort of scenario would apply yes we can acquire a provider that's all self-funded and they're not securitizing any assets the super fund would be able to go along and improve the property and develop the property okay so let's talk about a a greenfield exercise then and and

let's say you're in a position where the self-managed super fund would need to borrow funds put towards something are you able to borrow funds to to actually construct a development um that it generally speaking no um but there is a couple of circumstances where it might be possible um and one of those circumstances is through like an unrelated unit trust structure which is say where for example if we went 50 50 um via a unit trust me and you and my super fund and you're one of your entities that would be a way in which we could effectively get some geared exposure and that that entity in which we're sort of 50 investors it could go about securitizing assets developing properties improving properties things like that so that would be that's a

potential avenue in which you could develop a property but it would require i guess an independent um unrelated people like me and you to be able to make that exercise work um and and i guess that's one way in which it could occur another way which it might be able to occur as if if the super fund already had a borrowing arrangement in place um and you're wanting to improve that property well you know that that property could again it would the improvement would need to come from existing reserves contributions rollovers things like that even though there might already be some debt attached to the asset provided we can we only improve it and don't fundamentally change the character of it which is a gets into a bit of

legalese um then that's another way in which you could possibly occur but i think from practical experience you tend to find if it's more about well if we invest jointly via a trust structure and that trust structure isn't deemed to be a related party given that we've got independent minds and wills you know in undertaking the exercise then that's a way in which you can get a sort of indirect geared development exposure into a portfolio yeah interesting okay well that's quite eye-opening because that certainly changes a lot of people's perception of what you can and can't do in relation to the development space with super so really thank you for coming on today darren to open our eyes to that much appreciate good on you good on you mate speak

soon thanks darren so if you want to find out more uh about all this feel free to reach out to darren at kingdonfinancialgroup.com.au uh make sure you grab a copy of his book make super make your master your super i'll get it right the third time down master your super it is a really good read. So he has this ability to turn complexity into something that's very understandable. So grab yourself a copy of that. In the meantime, stay with us because you're here on Real Estate Talk.