An article on the website The Adviser talks about the approach of two groups which have thrown brickbats at the Financial System Inquiry’s recommendation about banning SMSF borrowings. Both the financial groups feel that the recommendation is self-defeating in nature and may push back the SMSF sector by years.
Australians, knowing that they may fall short of a decent retirement nest egg, aim to consolidate their positions through SMSF-enabled properties. Banning SMSF borrowings may ruin the chances of such investors.
Charge of duplicity
If APRA-regulated funds can enter real estate through geared managed funds, it is nothing but duplicity of not allowing SMSF from making real estate borrowings.
You can read the original article here.
What borrowers should be aware of?
There are certain things you need to keep in mind before making SMSF borrowings. Such borrowings are limited recourse and this means that if the loan is secured through a particular asset, the lender is eligible to attach only that asset in question in the event of a payment default. This is different from traditional borrowings where cross-securitisation is available to the lenders.
It goes without saying that such transactions must also meet commercial engagement standards mandatory for SMSF borrowings. here I am talking about arm’s length model for related party transactions.