Diversify your SMSF with short-term property project loan investments

“CrowdProperty offers a way to scratch the property investment itch without the long-term considerations of direct real property investment.”

In February 2020, the Australian Taxation Office (ATO) released new guidelines setting out what SMSF Trustees must include in their Investment Strategy document.

The new guidelines make it clear that the obligations of SMSF Trustees is to document their investment strategy in greater detail taking into account a number of influences that will impact the end retirement benefits, including:

  • Investment risk
  • Liquidity
  • Diversification, and
  • Asset concentration

One concern is the concentration of real direct property in certain SMSFs. Trustees must now focus greater attention on the above four factors as it relates to the concentration of their SMSF in real direct property assets, or other asset classes.

As of 31 December 2020, there was approximately $119.4 billion invested in Real Property in SMSFs. This figure was comprised of $41.3 billion invested in Residential Real Property and $78.1 billion invested in Non-residential Real Property^.

An alternative that could be considered by SMSF Trustees is marketplace lending platforms targeting small to medium property development projects.

With the launch of CrowdProperty, a marketplace lender for property project loans, SMSFs potentially have a new option to consider and to meet their Investment Strategy requirements.

Plus, it’s a way to scratch the property investment itch without the long-term investment considerations of direct real property investment.

Property development finance market waiting for an SMSF investment solution

CrowdProperty Australia COO Tony Zulli has decades of experience in financial services advisory and SMSFs. When he and CEO David Ingram were operating a traditional fund lending to SME developers, they consistently encountered three challenging questions in Australia’s SME property development and finance sector:

  • How can the process be made more efficient using platform technologies?
  • How can SME developers secure access to wholesale investors keen to invest in property projects? Raising capital via wholesale investors is seen as an alternative to banks and other non-bank lenders.
  • Can marketplace lending be a solution to meet the challenges faced by Trustees to meet the new ATO investment guidelines for SMSFs?
  • Following the release of the ATO’s investment guidelines for SMSFs, wholesale investors (and qualified SMSFs) and SME property developers were two distinct sides of a marketplace waiting for a solution.

CrowdProperty — a marketplace solution for investors and developers

One of the keys to bringing CrowdProperty to Australia was the potential to create an investment solution for SMSFs.

CrowdProperty enables wholesale investors to invest in property project loans, secured by a first mortgage, that can earn up to 7% target income returns* and typically pay back in 12-18 months.

Property project loans via CrowdProperty Australia are an alternative investment to allow SMSFs to diversify their exposure to real direct property and provide shorter term liquidity.

What’s more, with a minimum investment amount of $10,000, and the opportunity to invest across multiple projects, SMSFs are able to spread their risk while still potentially achieving similar target income returns* per investment or project loan.

Benefits of CrowdProperty for wholesale SMSF investors

Tony Zulli says the key benefit for SMSFs investing in CrowdProperty is to do with liquidity, asset concentration and diversification – three of the four investment pillars established by the ATO.

“A marketplace lending platform which effectively creates a loan that is provided to a borrower — in our case, an SME property developer — means you can actually have multiple investments in these project loans across a diverse range of different property projects,” Tony says.

“You’re only investing for 12-to-18-month terms, so you’re starting to meet the liquidity requirements of your SMSF. You’re also helping to meet the diversification requirements, and the asset concentration requirements, or de-concentration in this case. And potentially through that diversification you’re minimizing the investment risk to the SMSF.”

How to invest your SMSF with CrowdProperty Australia

The minimum investment in CrowdProperty, and the CrowdProperty Investment Trust (a managed investment scheme for wholesale investors), is $10,000.

An SMSF trustee can register online at crowdproperty.com.au — this involves submitting their personal and entity details (incl. certified SMSF Trust deed and accountant certificate), so we can automatically conduct ID verification, and set their investment preferences.

After this, they will be able to review the curated projects on the platform (fewer than three percent of project finance applications have been selected for the UK platform over the last seven years) and choose whether to pledge funds to the available project loans.

Each project is detailed in terms of what it is, who the developer is, location, target income return, loan term, and so on, plus you’ll be able to watch a webinar about the project as well as hear from the developer.

“Initially, SMSFs will be able to make lump sum investments to project loans posted on the CrowdProperty platform. Ultimately, we also hope to offer a solution for their regular superannuation contributions,” Tony Zulli says.

SMSF as wholesale investors

The wholesale investor test, as defined in the Corporations Act, applies to SMSFs for the most part, with a couple of additional considerations.

Back to CrowdProperty’s Tony Zulli:

“SMSFs are based on an aggregate gross income of $250,000 each year over the last two financial years for the trustees, or aggregate net assets of at least $2.5 million.

“A certified accountant of one of the three major accounting associations must provide a signed certificate to confirm the income or assets position of one or more of the Trustees.”

Next steps for SMSFs

If you manage your own SMSF, or if you’re an advisor to SMSFs, you can find out more about investing with CrowdProperty on our dedicated SMSF page here. Or simply contact us to book a time for a chat.

_^ Source: ATO SMSF Quarterly Statistics 31 December 2020

*Target returns, not forecast returns. For wholesale investors only. Terms, conditions and risks apply._