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SMSF Property Investment Pot Luck
Topic Started: 8 Sep 2015, 10:22 AM (910 Views)
Poontang
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http://www.smsfadviseronline.com.au/

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SMSF property investment ‘pot luck’, says CommSec
inShare2
Written by Miranda Brownlee Tuesday, 08 September 2015

CommSec has labelled physical residential property as a “hit and miss” investment and has discouraged SMSFs with less than $4 million from investing in the asset class.
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Speaking to SMSF Adviser, CommSec general manager of adviser services Eric Blewitt said that by investing in physical residential property, the average SMSF worth around $1 million is defying the rules or theories of proper portfolio diversification and exposing the fund to unnecessary risk.

Mr Blewitt said limiting the exposure of an SMSF to a property to 10 to 15 per cent would ensure the fund has sensible diversification.

“If you’re looking at an average SMSF, which has just over $1 million, and you’re looking at a 10 or 20 per cent allocation, you’re only looking at $100,000 to $200,000 worth of property,” he said.

“It’s not until you get to that $4-5 million balance that you can go buy something at $500,000 or maybe up to a $1 million and still have an allocation at a reasonable proportion.”

The performance of residential property markets in different capital cities has also been very diverse, he warned.

“Looking over the past year, Sydney was around 14.5 per cent, whereas Brisbane was 2.5 per cent and Perth was pretty much flat, so for an SMSF purchasing a property as a single asset, it is pretty much pot luck depending on where you purchased it,” he said.

Darwin’s residential property market, for example, has actually declined by 2 per cent.

“Property as far as SMSFs are concerned, specifically residential, is pretty hit and miss depending on where you happen to have purchased and therein lies the problem with [investing] in an illiquid asset, so unless it’s only a small portion of a balanced portfolio, it’s pretty challenging,” Mr Blewitt said.

The yields from residential property are only expected to reach around 3.5 per cent while capital growth is only expected to be around 5 per cent, he added.

“Your risk premium over and above cash isn’t too much – okay, you might have some capital growth, but looking at the last year, looking at the diametrically-opposed growths and reductions in the country – it’s pretty hard to pick,” he said.

“It’s a challenge because you’ve not only got to pick the right area, you’ve got to pick the right apartment or the right house. We’re coming into spring carnival season – you might as well see what horse you’re going to back.”
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stinkbug
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Generalising all resi property takes away credibility from the article. There are properties you'd never buy, properties that make good buying and everything in between.

Still, it's a vested interest so what would we expect.

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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Will
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Well if you look at an individual household, I don't know of any in which the dwelling they live in only absorbs 10 to 15 percent of the household budget. The article is garbage from comsec unfortunately. I would also add that property accounts for perhaps 40 percent or more of the total assets of the entire country. So a proper diversified portfolio should represent this. The article is really just a share spruik. Think about the performance of the all ords compared to Sydney property since 2007. What would anyone invest in shares?
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herbie
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Point 1:

In mid 2006 I think it was, Oz Super funds knew they'd had a bumper year.

The financial section of "The Australian" Saturday paper was full of stuff about how wonderful super was and how it was setting Australians up for wonderful retirements.

The one dissenting voice I saw on the issue was Ian Macfarlane (an ex-gov of the RBA I respect) who went Hmmm - I'm not so sure about this? In 'the good ole days' Aussies would have been paying down their mortgages on their homes and whacking some cash in the bank - Not exposing themselves to the vagaries of the international stock markets.

Point 2:

The stock market trader I most respect, reckons stocks are REALLY risky!

So even as an old fart with many years of successful trading experience under his belt, at his age there's no way in fuck he'd have more than 25% of his wealth exposed to those fuckers. Nope, property is where he wants the very great bulk of his loot to be Ta muchly. (He's a Brit if anyone's interested.)

Point 3:

Didn't read the Commsec article; Just the stuff quoted in the OP. Because if I wanted to read crap spruiking shares, I could go and read Kris Sayce. Or MacroBitchiness I guess.

Edited by herbie, 8 Sep 2015, 09:07 PM.
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