A SMSF for Property Development ?

November 20 2014

The benefits of a SMSF for Property Development

More Australian’s than ever before are using their superannuation funds to invest in property development.

According to the quarterly superannuation statistics for September 2014 report released by Australian Prudential Regulation Authority (APRA), self-managed superannuation funds (SMSF) grew considerably in Australia.

Self Managed Superannuation funds growing every year in Australia.

Self Managed Superannuation funds growing every year in Australia. Source: Digital Finance Analytics

The rise in the popularity of SMSF has also been a big deal for property development. Currently, 12% of SMSF asset allocation in Australia is in property, with the construction of new homes, units and commercial property starting to become an integral part of the mix.

There are many factors to consider before you use your SMSF as a way to get into property development. Some of the advantages of undertaking property development with your SMSF are outlined below:

1. Building Your Portfolio: 

Australian SMSF can borrow to invest in new residential property, with lenders typically funding up to 70% or 80% of the purchase price. Investors can take advantage of low interest rates to build a bigger portfolio now, and potentially earn more income and capital growth in the future. As long as your returns outpace borrowing costs, you will come out ahead.

2. Diversification: 

Property development can be used as part of a diversified SMSF. Add to the investment mix of shares, bonds, cash and other real estate.

3. Tax Savings: 

Property development offers tax deductions and a tax minimisation strategy for investors.

Just like individuals, SMSFs can use negative gearing to claim a deduction for borrowing expenses. Rental income paid to your SMSF is generally taxed at just 15%. However, if you are over 55 and commenced a Pension in your SMSF, then the rent you receive is tax free. According to e-superfund, after commencing a Pension in your SMSF, any capital gain when you sell the Property is also tax free.

4. Entry to Get Property in Your Portfolio 

Developing new property, rather that buying established can be a better long-term real estate investment option. Having a new property will reduce chances of major renovations or alterations and other surprises from older property. Developing is also far more superior as you typically already own the land, so its easier to get finance. You can also build many more properties or units to increase capital growth faster, and generate far more rental income multiples.

5. A Great Tool for Playing the Long Game to Retirement

Property development can be far more lucrative for your portfolio if the development can be funded and you can generate capital gains and income streams at low tax rates. Over time a property development strategy can be built up to include more land and more opportunity for new units for more capital growth.


Some risks and ‘grey areas’ in the rules also need to be considered. Here are some articles for your reference that help explain the rules and limitations.

Morningstar: Property Development in SMSFs explains a few points worth considering:

  • Property development by an SMSF can be carried out via a range of structures.
  • An SMSF may enter a joint venture with, say, a builder (such as Perth’s Ventura iD) to develop land owned by an SMSF and then share the output
  • An SMSF may invest in units of a unit trust (geared), which will buy and develop the property. This structure allows multiple investors (including multiple SMSFs) to purchase property.
  • Another option an SMSF owning land may consider is entering a development agreement with a related or independent third party.
  • An SMSF must broadly deal with other parties on arms-length terms. This rule requires parties that are not at arms-length to make sure their dealings are.
  • An SMSF must generally not give a charge over a fund asset. Many building contracts, however, provide for a charge over the land and property being worked on.

Other sources:

To team up with a local builder for a new development, contact Ventura iD – The Perth Property Development Experts. 

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