Borrowing-backed strategies used by Self-managed super funds have come in for some sharp criticism. Fund managers and Super advisers are throwing brickbats at them and there have been talks of a major financial review in the given regard.
SMSF borrowings becoming a concern
There are shouts that if permitted to grow unfettered, SMSF borrowings will bring in a state of economic anarchy. Already, it is up by 300%, calculated from 2008 to 2012. There are borrowing schemes aplenty and some of them have failed to launch themselves because of payment defaults on pre-construction phase (off the plan) properties.
Direct leverage of super funds not appreciated
Experts feel that by roping in the strategy of direct leverage of Super funds, SMSF borrowings bring in a completely avoidable event of financial uncertainty on the table. Already, the 2012 stats are disturbing enough. If you add to this that the data is restricted till the last tax return and in the last couple of years, borrowings have gone further out of control; the smoke alarm just has to go red sooner or later. And a lot of financial smoke will come out for sure!
Regulatory powers have made a false step
In fact, if you really look at it, the fault has been as much from the regulatory powers that be. There is a lot of confusion around the guidelines put up by the state regulators, including tax, securities, and property market guidelines. Implementation, if any, is fairly vague and it adds to the helplessness of the situation.
Off -the-plan construction is the point of debate
For instance, just imagine that there are talks that off-the-plan constructions continue to be recommended without ground thinking, because it ensures advisors hefty commissions. This is where the nefarious element sets in. Overpromising clients in terms of capital growth and rental yield only trivialises the situation further.
On the other side of the horizon are claims that a tough call on SMSF borrowings is not fair and the grounds of criticism are largely unfounded.
What’s your take on SMSF borrowings?
