The Property Funds Association (PFA) has acknowledged the issue of “concentration risk” being pervasive in the SMSF industry from an overreliance on direct property as the main asset in each fund.
It cited the Council of Financial Regulators’ report from earlier this year which expressed concern about the prevalence of low-balance SMSFs (less than $500,000) with “little investment diversification and high loan-to-value ratios, making these funds particularly susceptible to shifts in the property market”.
For PFA CEO Paul Healy, even where individuals do choose to use property in their self-managed super fund, there’s opportunity to diversify across different property asset classes.
“Many SMSFs are putting their eggs into one basket property-wise, which is a missed opportunity when you consider the huge property investment universe available via unlisted funds.”
According to Mr Healy, SMSFs using unlisted funds have increased access to assets beyond the reach of direct investors, while also benefiting from increased diversification.
He indicated that SMSFs can diversify across property asset classes including office property, industrial property and emerging alternatives such as healthcare through unlisted funds.
“Unlisted property funds have delivered strong returns due to an ability to combine capital growth with income from rents, while showing lower volatility compared with equities and listed property trusts,” he said.
