Using your super to buy real estate

Superannuation funds have always been permitted to buy real estate. The problem was that they were prohibited from borrowing, as superannuation is for security in retirement, and borrowing was seen as endangering the nest egg assets. However, superannuation funds are permitted to borrow to buy real estate, provided that the other assets of the fund are not endangered, and provided that strict requirements are observed.

The problem used to be that, if a superannuation fund borrowed money and was unable to repay the loan, the lender could sell up the other assets of the fund. Superannuation funds are surrounded by legal rules, to ensure that the funds are not depleted, as this could throw the members back on the social security system.


The solution is to set up a separate company, known as a “custodian”, to buy the real estate. It is the custodian which signs the mortgage and holds the title to the property. If something goes wrong, and the loan is not repaid, the lender can sell up the real estate, but cannot come after the other assets held in the self-managed superannuation fund.


Once the loan is paid off, the real estate is transferred to the superannuation fund, free of stamp duty and free of capital gains tax. If the property is sold, the profit goes back to the superannuation fund.


However, be careful to do it correctly. There are complex rules as to how the arrangements must be structured. These include requirements as to documenting the relationship between the superannuation fund and the custodian. The rules also require that the loan and mortgage documents must state that the loan is non-recourse, meaning that the lenders rights do not extend to any of the other assets of the superannuation fund.


Another trap is that the custodian company must be registered, and the document between the custodian and the superannuation fund must be signed before the contract to buy the property. Otherwise, double stamp duty may apply.


We have recently had a client wanting to use their superannuation to buy a home unit at auction. We became aware of this when the client brought us the contract to check three days before the auction. We then had to scramble to set up the custodian company and the structure before the auction. It is better to contact us when you start looking. In that way, you will be able to sign a contract as soon as you find a suitable property, with no last-minute panic.


For more details, please contact Andrew Somerville



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