SMSF property purchase – Is there an SMSF fuelled property bubble?

Recently a client asked me whether I would personally invest in property at the moment given the negative publicity about a property bubble and investors inflating prices – particularly given the current trend of SMSF property purchase (self-managed super funds).

There is a lot of scare media out there at the moment. And so much of the commentary is contradictory, so it’s hard to work out what is real and what is not.

One of the big concerns about SMSF property purchase is that there are so many property spruikers out there peddling terrible property with “guaranteed rent returns”, frequent flyer points, etc. So many mum and dad investors fall for this so called “fool proof, stress free” investments and end up with something that has no capital growth. A lot of the media I have been reading about regarding SMSFs has been pointing the finger at these sorts of schemes.

The fact that SMSFs are becoming so popular is resulting in more investors entering the market, so you could argue that there is a bubble being created by this particular market segment. However, most of our investor clients are not buying through their SMSF and the agents we regularly speak to are not seeing a disproportionate increase in this type of buyer. So I don’t think the presence of this type of buyer in the marketplace in which we operate is having a significant impact on prices.

The market is certainly hot at the moment and the jury is out as to whether this is a bubble or not. You have seen the way in which we evaluate a property and determine value. We know when to stop and walk away – and have done so on many occasions. We are very careful about avoiding paying inflated prices on property and that is our strategy to avoid being caught out if in fact this is a bubble.

If, however, it is not a bubble, we can expect prices to keep rising into early 2014, in which case the prices we pay now will seem like bargains then! The market started moving at the end of last year and we were very cautious then. We walked away from many deals that seemed too hot – in retrospect, some of those would have been OK buys but we simply couldn’t advise our clients to take the risk. We also paid fair market price for a number of other properties – all of which have now significantly increased in value.

The upshot? I am not personally concerned about the SMSF property purchase issue, because we don’t help our buyers to buy the sort of property that is traditionally offered to that type of investor. As for a bubble? We are careful to mitigate the risk here by virtue of our pricing research + property selection (we don’t recommend duds!).

The answer to the question is: yes. As long as I am not overextending myself and can find a quality property that I can pick up at a fair price.

Published: February 2014

Further reading:

How to use statistics when buying property

Investors, There is a Reward of Patience

Will the Australian housing bubble burst? What is fact and what is hype?

Please note: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.

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