It is possible to buy off-the-plan property in an SMSF; however, if you intend to take out a loan to do so, you will have to establish a bare trust as explained on our property page.
Investment Strategy
Buying off-the-plan property can be risky and Trustees must ensure that this type of investment is allowable and appropriate for their SMSF. One of the risks of purchasing with a mortgage is that if the lender’s final valuation comes in lower than the contracted price, you may be forced to make up the shortfall in your SMSF, which could be an issue if the SMSF does not have sufficient funds.
Points to remember when purchasing off-the-plan with loans in an SMSF:
- The property purchase should be subject to one contract, which must be for the completed house and land. Do not purchase land and then look for an SMSF loan to construct a property on it. You will not be able to use the land as security.
- A custodian Trustee must be in place before the purchase is made so that the contract can be signed with this name.
- Only one property can be added in a bare trust. When purchasing a second property, a new bare trust must be set up. The same custodian trustee can be used for multiple bare trusts.
- Do not borrow to the limit of your SMSF. Make sure you have some liquidity to manage low valuations or the demand for a lower loan-to-valuation ratio from the lender. Alternatively have the capacity and ability to add funds to your SMSF without breaching the contribution caps.
ATO Guidance
For detailed guidance on the issues involved we recommend that you read the ATO’s Taxpayer Alert TA and in the minutes of the NTLG Super Technical sub-group (September 2019).
Next step
When you’re ready, please send us the property details and instruct us to set up the Bare Trust for the SMSF.
