Property in Super

Is property a good investment for your Superannuation?

In recent years, changes to the Superannuation legislation have meant it’s now possible for self-managed Super funds (SMSFs) to use borrowed funds to acquire property, providing a greatly enhanced opportunity to diversify investment portfolios. This has sparked a lot of interest from Australians.

Over the past 15 years, the average Australian Superannuation funds have returned 5.19 percent per annum net, with retail Super funds at 3.84 per cent and industry funds at 5.59 per cent.

Over the same period, Australian property has grown by 8.42 per cent. This, in addition to average net rent of about 3.6 per cent, gives a total return of 12 per cent per annum.So why haven’t more Australians invested in direct property with their Superannuation? Prior to 2008, in order to acquire property, an SMSF had to be able to pay for it outright. Since the Superannuation legislation was changed in September 2007 to allow borrowing, it is now becoming far more common.

The big question is, by how much are property and Superannuation funds likely to grow in the future, and how would this look? Let’s consider two scenarios for a couple aged 45 with a combined income of $200,000, and a total of $180,000 in Superannuation, and who wish to retire at age 65.

Scenario one is that they continue to invest in a traditional Superannuation fund, and this fund achieves an average return of six per cent per annum. They contribute the usual 9.5% of their income now. As mandated by the government, this contribution gradually increases to 12% of their income by 2020. By the age of 65, they should have accumulated $1,585,000.

However, in today’s dollar terms, allowing for inflation, it is actually closer to just $950,000. If the Superfund continues to return 6%, they will only have about $57,000 to live on each year between them.

Scenario two is that they use some of their funds to invest in a $400,000 property, and we assume a conservative rate of growth at 5% (which is just 2% above inflation). The property attracts rent of $400 per week, less typical costs of interest, agents’ fees, insurance, maintenance, and vacancy, and we allow for a 20% deposit plus costs totaling $105,000, leaving $75,000 in their normal Superfund growing, as above, at 6%.

After 20 years, the total combined net value of the property and Super comes to $2,170,000, or $1,300,000 after allowing for inflation. This is $350,000 or 36% better than the Superannuation fund only model.

Using an SMSF to borrow funds for property investments can be a very powerful tool. The information above is general in nature and there is plenty to think about, so before deciding if this is the right strategy for you, seek advice from your appropriate advisors.

Investing in property using your..


Property is well worth considering as an investment in a self-managed superannuation fund (SMSF), however, Superannuation laws only allow funds to be invested in certain types of property and in certain ways. 

SMSF versus Personal Investment

Undoubtedly it is different and more involved to invest in property using your SMSF, but considering the possibility of such significantly increased returns, it is well worth considering.

The main differences between buying property in Super versus your personal name are:

1. Larger deposit:

For Superannuation, the minimum deposit for residential property is 20% and for commercial property it is 35%. However, if you don’t have enough money in Super, you may be able to transfer or lend funds from your personal assets or property.

2. Lower tax:

Any profit made from the property, such as capital gains or when the property becomes positively geared, is usually taxed at a much lower rate.

3. Cannot negatively gear against personal income:

If the property is negatively geared, you cannot directly transfer the loss to your personal income, however there are some methods to help offset this.

4. Cannot borrow against equity growth:

The laws prevent you from borrowing against increased equity, such as if the property increases in value from capital growth, renovation or paying down the loan. If you want to use any increase in equity, you must first sell the property.

5. No development allowed:

In SMSFs, if there is any debt whatsoever, you cannot fundamentally change the structure of the building or land. While you may be able to repair and renew, you cannot do things like adding a level or room to the property or sub-divide the land.

6. Trust structure required:

As you are not buying the property in your personal name, but in the name of a Superannuation fund, it needs to be established via a trust structure. This is easier than it may sound and many financial planners and accountants are very adept at setting them up. Just try to ensure they are experienced and skilled in the area.

What types of property can I invest in..

With my Super?

The Super laws and the differences noted earlier generally mean you are limited to buying residential, industrial and commercial property, including:


This includes units, townhouses, and houses. If you are considering off-the-plan purchases be very careful, as the risks can be quite significant, particularly if you don’t know how, or are not in a position to manage the risks well.

The general rule is the property needs to be income-producing, so you cannot buy things such as vacant land. Always check with your advisor for any specific requirements.

Bear in mind this information is general in nature and does not take into account an individual’s personal situation. You should always seek professional advice for all types of investment.

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