Self-managed super fund trustees are turning to the commercial property market as they look for high-yield assets. It is an area the ATO tends to watch closely and trustees need to pay attention to the way they structure property investments.
Dean Venturato, a director of commercial property agent Burgess Rawson, says self-managed super fund trustees have emerged as a significant buyer group in recent years and now make up 50 per cent of the company’s sales.
He says popular assets with private buyers, including SMSF trustees, include petrol stations, fast food outlets, child care facilities, government-leased assets and high-street retail premises, including bank buildings.
Venturato says: “Fast food is always a strong performer and petrol stations offer high exposure and long leases.
“Childcare centres went through a rough patch after the collapse of ABC Learning but now we have 90 per cent clearance. Investors like them because government subsidises the fees, corporates lease them on long terms and there is no real disruptor potential.”
“Yields have come down below 5 per cent in Sydney but in regional areas we have sold properties with yields between 6.25 per cent and 7 per cent.”
Venturato says government buildings offered on a sale and leaseback basis often have “five plus five plus five” leases. Demand is strong and yields are under 5 per cent.
He says investors should be cautious with government offices in country towns. Often the office is the biggest building in the town and would be hard to lease if the government tenant moved out.
He says the bank branch market is an interesting one. Banks are reducing their branch footprint, cutting the number of branches and moving to smaller premises. Branches often have the best location in a suburb or town and can be converted for other retail purposes.
Venturato says he is seeing yields rise for the first time in five or six years, which he believes is the result of banks tightening up on commercial property finance and also higher investor mortgage rates.
Peter Hogan, the head of technical at the SMSF Association says trustees tend to focus on the buying decision but the Australian Taxation Office tends to focus on the ownership structure.
“The first trustee obligation is to make sure direct commercial property ownership in included in the fund’s investment strategy. Trustees must have a written investment strategy that sets out what the fund will invest in,” Hogan says.
“The fund’s auditor will expect to see it and the ATO has an expectation that the investments the fund makes are covered by the strategy. The ATO also expects it to be reviewed regularly.”
Hogan says another obligation is to make sure investments satisfy the long-term savings and retirement income goals of superannuation and not any short-term goals.
“There are also a lot of compliance rules that deal with related parties – acquiring an asset from a member or buying with a related party. There are also rules about who you can lease it to.”
According to the ASIC MoneySmart website, an SMSF must not buy property from a related party and it must not be rented by a fund member or any fund member’s related parties. An exception to this rule is that SMSFs can buy their members’ business premises
“There are a lot of rules covering property development in an SMSF. You can do it but it is hard to get it right,” Hogan says.
“If members work on the development it may breach the related party rules. And if there is working capital involved in finance the development it may breach the borrowing rules.”
There are various forms of ownership structure, including direct ownership and shared ownership with other members.
“You can own it through a private unit trust, which might have a number of unitholders.”
