by Olivia Long

For trustees, the past few years have been exacting. The GFC, and all the market fall-out, undoubtedly caused many a sleepless night. Doomsday averted (just), they then had to address the issue of when to re-enter the market, especially the equity and property markets.

As always, there was no shortage of advice from the sidelines. Quite a few at the top end of town, in particular, were arguing as equity markets jumped sharply in 2009 that there was no time to be lost. The evidence shows many trustees, their GFC memories still fresh, were loath to test the waters. Blue-chip equities and cash seemed like safe – dare I say smart – options.

In the event they were proved right; the 2009 share market rally proved very much a dead cat bounce, with the markets in full retreat the following year.

I was reflecting on this the other day when I read another article where one regulator or another was warning about how SMSFs were becoming over-exposed to residential property. The regulators clearly believe (with the best of intentions I should add) that trustees are listening to the siren call of property spruikers and, as a consequence, are putting their retirement savings at risk.

Well, I’m not so sure. To begin with the hard facts don’t support the regulators’ arguments. At 30 June 2013, property in SMSFs consisted mainly of non-residential property such as commercial property ($58 billion) compared with residential property ($17 billion) out of total of $495 billion. At $17 billion, that’s 3.4 per cent of all SMSF assets.

Of more concern to the regulators has been spruikers urging trustees to use limited recourse borrowing arrangements (debt to the layman) to buy property for their SMSF. Again, it’s an appropriate warning. But it is worth noting that the latest ATO statistics show geared property in SMSFs makes up less than one half of one per cent (0.48 per cent) of their total investments.

As the regulators rightly point out, these statistics lag the market. And there has been renewed interest in the property market with auction clearing rates, in the inner city areas in particular, showing solid gains. Whether that amounts to a property bubble is another issue, although even if it is the degree to which SMSF trustees are underpinning it is far from clear cut. It’s certainly interesting that the same question isn’t being asked of myriad investors who are negatively gearing outside superannuation to acquire an investment property. Perhaps the regulator believes they are all canny investors who need no guidance.

Let me be quite clear on this point. Property spruikers who target trustees, or, perhaps more importantly, who target people to set up SMSFs to use gearing to buy residential property, deserve to come under the regulators’ spotlight. In some instances I suspect they are not licensed or qualified to give such advice.

But among established trustees I suspect there is a healthy degree of old-fashioned cynicism when they hear the latest sales spiel. The evidence shows most trustees are conservative investors. Indeed, they are often criticised for being too conservative.

So we will all watch with keen interest when the official statistics reflect what actually happened in the residential property over the past year. I’m betting trustees have shown more commonsense than they are being given credit for.