Peak bodies warn ban will dampen investor confidence, while fears of industry job cuts emerge
Three of Australia's peak finance and broking bodies have expressed concern over the federal government's decision to ban residential SMSF property lending, warning the move could have unintended negative consequences for the Australian property market.
In a joint statement, The Mortgage & Finance Association of Australia (MFAA), the Australian Finance Industry Association (AFIA), and the Commercial and Asset Finance Brokers Association of Australia (CAFBA) each criticised the measure as a blow to an already fragile investment environment.
Under the deal struck between Labor and the Greens to pass the government's budget tax legislation through the Senate, SMSFs will be prohibited from using limited recourse borrowing arrangements (LRBAs) to purchase residential property.
Existing arrangements are grandfathered, and a 45-day transition period applies for investments currently in progress. The change forms part of a broader tax reform package that also overhauls the capital gains tax (CGT) and negative gearing regimes.
AFIA chief executive officer Diane Tate (pictured, right) said the reforms had targeted a small and well-understood corner of the lending market, and she called for a careful transition to avoid disruption to existing borrowers.
"This is a well-understood market that has operated effectively within a clear regulatory framework for many years. Asset limitations already apply to SMSFs and these arrangements are primarily used by Australians seeking to sensibly diversify their retirement savings," Tate said.
Tate also pointed to a pattern of government reform without adequate consultation. "This is another example of the Government not consulting on proposed tax changes that will affect credit availability and Australia's lending market. Technical amendments will be critical to ensure existing borrowers are not disadvantaged and the transition is orderly," she said.
MFAA executive of policy Naveen Ahluwalia (pictured, left) said mortgage brokers were already seeing investor pipelines weakening following the May Budget.
"Mortgage and finance brokers are hearing from investors who are delaying decisions, reassessing future investments and, in some cases, stepping away from the market altogether," Ahluwalia said.
She continued: "SMSFs play an important role in housing investment and restricting access to lending risks becoming another disincentive for Australians willing to invest in residential property. At a time of housing shortages and rental pressures, the focus should be on encouraging investment that increases housing supply, not discouraging it.”
CAFBA chair of advocacy David Gandolfo (pictured, centre) said the SMSF announcement was part of a broader trend his members were observing across commercial and asset finance.
"Commercial and asset finance broking is a real time barometer of business sentiment, and our members are seeing an immediate retreat of capital and business investment under this policy and others announced in the Federal Budget," Gandolfo said.
However, Kaya Geale at Tasmania-based Fortify Loans said the closure of the SMSF residential lending could inadvertently accelerate a flight of investment capital into commercial property – particularly given the sector had not been touched by the government's Budget reforms.
He pointed to industrial and warehouse assets as the most immediate beneficiary, with retail a likely second, driven by what he described as a structural advantage in yield.
"There's probably going to be a push of customers and clients that way because there is a flight to yield for borrowing capacity – and commercial has high yield,” said Geale.
He was candid, however, that the dynamic could create its own distortions. With residential investment being more restricted across multiple fronts – negative gearing changes, CGT reforms and now the SMSF ban – a concentrated move toward commercial could inflate asset prices in a market with far less available stock than residential.
"You could almost say there's going to be this artificial bubble with commercial, because more demand is going to go there. Maybe it's going to push that asset price through the roof," Geale said.
Jobs warning
The concern extends beyond SMSF lending itself. Geale said the decision had come without any consultation with the industry and raised real fears about employment at lenders who had built dedicated SMSF residential lending teams.
"You'll probably see more redundancies," Geale predicted. "It's not just about the investment. These people put food on the table, feed their kids – they could lose their jobs."
One broker speaking with MPA said he was also hearing from multiple business development managers (BDMs) that lenders were currently in a holding pattern – waiting to see what their competitors will do before making any formal response to the ban.
Watch this space for more updates.
