Hello, and welcome to the Australian's Money Puzzled podcast. I'm James Kirby, the welth editor at The Australian. Welcome aboard everybody. I don't know about you, but it strikes me that if I can get money out of my superfund to do a Tommy Tuck or some cosmetic surgery, and the cosmetic operators will help me fill out the form to get my super out early, then I think you should be able to use your super for your own property plans.
Now there's a debate about this. I'm quite aware of that debate and I've come down clearly on one side, which is unfortunately, I think there's no escape here. The tax system is totally loaded in favor of the homeowner and then everything has flows from that. And on that basis alone, I think if it comes neck and neck between super and owning a home, you need to own
a home in our tax system. And separately, as somebody who has had a self managed super fund, I've already used my super to buy an investment property, and not only that, but I've used it in a fashion that
is really worth checking out. Not many people do it, but you use your you use the super fund in a non leverage way, so you're super fund, you the investor, the listener do a joint venture with your SMSF, and that joint venture buys an investment property the superfund, your SMSF simply puts in equity and nothing else, no leverage, no loans, pay no cost whatsoever. They just put in
a piece of equity fifty grand, one hundred grand. And then in the future of say ten years time, and when you go to sell that property, you simply whatever you've made, whatever the superfund has made, you contribute that back into your superfund, and you go your own way. It's a very interesting principle, and there are bigger plans afoot around that, which I'm going to introduce you to in a moment. My guest is a person who's actually devoted several years to this whole area and has a
plan I think you to capture our imagination. We're going to talk about possibilities between super and property. We're going to talk about what he has in mind and also answer some questions. It's Simon Jones from Home Super How are you, Simon good? Thanks James, Thanks for having me on and for.
Your listeners for cheening it.
Oh nice to have you on. Nice to have someone who's really across this, this whole concept. And before we talk about your ideas, let's just talk about what is and is impossible. Just now. With SUPER, I want to sort of distinguish between what you can do and what you might be able to do in the future. And
I brought up the cousin metic surgery thing there. It's provocative, but it's true, it is, and I've done quite a bit of work on that, but a journalism work, I mean, I haven't done some cosmetic work, not as yet.
It's an interesting leading because, as you're right, there is some different ways you can withdraw your SUPER and one of those SUPER and housing has been interlinked for quite some time. And one of those early release mechanisms is in the event of financial hardship, and that's if the bank is looking to foreclose on your home or a local council for non payment of rates, and as a last resort, you can essentially break the glass and withdraw
those funds. That part I've had some experience with, unfortunately, helping some mums and dads and those in trouble with financial hardships. Unfortunately, in that circumstance, you would think someone's punished enough with the threat of losing their home, But government imposes a twenty two percent withdrawal tax on that. And we could argue whether tummy tucks are a necessity in life, but for me, living in your own home certainly is. So I've been advocating for the removal of
that twenty two percent tax. And we also found a bit of a void and we built an online calculator linked to our website to help people understand some of the pros and cons of using a super last resort.
Just about that twenty two percent that you pay if you take super out, Does that apply right if you were a one week from retirement?
What it still apply does unfortunately? Yes?
Yeah, right, okay, very interesting just to kind of fill in the landscape. First of all, for people just now, there's very few things you can do. Assignment says it's financial hardship, which oddly this some of the cosmetic treatments fall under, and that's where money is coming out the back door of supers. Very hard to take money out to buy property, especially if you are in the convention
of the Big super Fund. There is plans afoot. That is, at least the Coalition has a plan which would allow people to take fifty thousand up to fifty thousand dollars out of SUPER of any fond to put into their home. That's a plan that's there at the moment. And in terms of what you can do, there's very little, but there is there is a plan. There is at least a scheme existing. It exists, it runs since the days of the Morrison government. It's called the First Home super
Server Scheme FHSS. It's terribly elaborate and complex scheme. Some listeners have used it so where you can kind of quarantine your contributions to SUPER into a bucket basically, which you can then use to put towards your first home. It's quite elaborate, it's quite niche. But that's all. Is that all that's out there so far? Assigmon, Have I missed anything.
That is any incentive? Yes, to help people save and a tax effective mechanism really, but you know, it really does depend. You mentioned the self managed circumstance there, and whilst this does not apply to everyone, a self managed fund, as you know, can buy an investment property. It can also buy business real property. So for someone who's self employed and they might be say a mechanic, and they wish to buy the commercial property in which they operate,
that it allowable. But there's also there also is some quirky ones where they may need to live on site to actually operate the business. So there is actually some circumstances where someone can essentially buy a property that's obviously commercial there is a residence allowed. So there is all sorts of quirky and wonderful ways.
And oh that'll be like an olive farm or something.
Well depends again, I'm not going to say any specific can get myself in strife, but it.
Will be an obvious one. If you bought a farm and house on it, would that be the sort of thing where it might be possible.
That's pretty Sometimes the house is quarantine depending it could be a security measure where you need to be on site, or various other circumstances. But look, bits they are few
and far between. But previously you mentioned about doing a joint venture with your fund and liking it to what the proposed fifty thousand as you mentioned by the LNP, and in that where you suggested you put the funds back into super We argue that it should never leave you should you should be able to do those joint ventures.
But just to clarify for the listener, before we talk about what you're planning, just tell us about that how that works. So someone with an SMSF, how they can actually use equity funds from the SMSF to buy a property and the individual through a joint venture with the SMSF can actually do everything else, pet stamp duty, have the loan, et cetera.
Yeah, correct, depending on again lenders and circumstances, because the fund's assets should not be charged and held under a mortgage. But there is circumstances where correct, there can be a joint venture with the fund and that's not extraordinary. There's the circumstances out there. It just gets a little bit complicated though when it is a residence in the current form. So just ensuring there's no financial benefits to the member he is not or he or shea are paying the market rent.
Yes, you cannot stay a single night in that place if you own it in that arrangement because it's strictly for super return, isn't it?
No, there is some carve outs with respect to repairs, or if it is a holiday home that's say independently managed and you are only staying for a for a week, and if it's peak peering, you might still have to pay full freight. So there is some circumstances, and it's highly dependent on circumstances and ensuring that the fund obtains
commercial returns no matter who is in the property. So there is some quirks, and that's where often trustees can get themselves into strife if they just overstep that mark or not do everything to satisfy the regulations.
Okay, but the reason listeners that I'm trawling through this, I'm basically showing and trying to demonstrate to you that under law, if you like are under the arrangements we have in super there is the possibility already to use cer superfund not just my property, but that you, an individual investor in country with your SMSF, can buy property together and the SMSF can put in the equity and you do everything else, and then at the end of the arrangement, you sell and the super fund gets what
it's entitled to. Something not dissimilar to the home equity shared scheme, which is just basically looks like it's going to get proved through Parliament this week, and that would be where the government, for instance, shares with you and they can take up to forty percent of a property and you can take the rest and then in five or ten years time when you sell, you split the proceeds. I'm just basically lanning these things out, Simon, so that we can give people will have some context to what
we're going to talk about next. And I should have said also Simon's background is in advice at all, at various levels over the years, at fairly high levels in the financial advice sector. Okay, we'll be back in a moment and we're going to talk about the possibility about how you and your superfund, any superfund, a big superfund, buy a home together. Back in the morning. Hello, welcome
back to the Australians Money Puzzle. I'm James Kirby and I'm talking to Simon Jones from Home Super Okay, Simon, elevator, pitch, tell me what you've tell me, what you've planned in the simplest terms that at its very best, if it came to pass, how would it work?
You can buy your home with less debt? As and more security. Utilizing your super fund as a co investment partner, so a shared equity arrangement whereby your fund takes an equity stake, you don't need as much money to buy the property and there's less obviously less opportunity going back to the bank and more to your fund.
That's the elevator pitch. Okay, very good. And the fund can be any fund. It could be any of the big funds if they sign up to the idea. Okay, Now, I would have thought I know a fair bit about super but it's like a language, isn't it. It's endlessly full of surprises and contradictions. I would have thought that it was impossible to do that. But you've had some legal among other things, you've had some legal direction, if
you like, from on your board. You have an advisor who's also a partner at Minternesson and she has established that there is no legal there's no current legal blockade to what you're planning.
Is that how it sits correct? And once again it's all about it depends. It depends on the circumstance of the deal. And with respect to ours, the individual must be approved to buy the home on their own outright with a bank before we even get involved, because otherwise we would be providing financial assistance and giving a member an opportunity that they wouldn't normally have. So that's a crucial that's a crucial hurdle number one that we address
at the outset. So again just ensuring that if they're eligible to borrow six hundred thousand, we know now the average mortgage is about six forty and the average first
time buyers thirty five years of age. So if they're borrowing six hundred thousand, they've been approved for that amount, and they've got their deposit and twenty percent deposit, we can then look at utilizing some of their super to bring that six hundred thousand dollars down to an amount depending on their balance, and invest that prudently in the property. So we're not providing as a said, we're not providing
that leg up. It's just another avenue of finance utilizing equity instead of just all debt and deposit.
And then for the customer here, what it means is that their mortgage is smaller.
Correct correct, and their serviceability buffer is essentially also increased. Not only that, mostly when they're buying their first property will lend. Two thirds of these are bought jointly, and you might be considering there with your mortgage broker, the bank, or relying in bed do we fix or do we
leave it variable? And this also offers a little bit of a hedge against that because, as I said, to be to utilize this product, you must have your finance approved at six hundred thousand, and the banks have obviously used their buffer on top of that. So we've pulled that back even further and provided an additional buffer. And the equity from the fund going in obviously does not affect interest rate variations for the debt component.
Okay, now, folks, part of the logic here and the imperatives behind this idea is there so many people of course now are retiring with the mortgage. If you think about it back not that long ago, say ten years ago, so a what a quarter of lumpsom withdraws were used
to pay off a mortgage. By two seventeen that had gone to thirty percent, and now it's climbing higher and higher, where something like slim majority of do you know the number assignment is it something like half of all retirees now as they approach retirement, they still have a mortgage you need to pay off something.
Correct. I think it's between fifty five and sixty four. The average balance is about two hundred and thirty odd thousand and what the funds speaking with some funds that the apro figures are around thirty percent of all lump Some withdrawals are going to repay mortgages. So that's not the intent of super And some funds we've been speaking with they said the numbers actually closer to forty percent for them.
So your yeah, I love your point. Your point is that for all this talk that you can't touch your house with super, if one in three people when they get finally get there some super and retire, they get a lump sum, and one in three people turn around and spend it on their home having accumulated debt all their life. Yeah. Correct, This is the macro picture you're putting in now, just to try and see how this might really work. Has any super fund signed up with you yet to do this.
No, now, a couple of signed NDAs, and they're very interested. But like with most super funds, they're very, very slow and prudent. And this obviously is on their radar now and the Treasury's paper in I believe it was twenty twenty, Federal Treasury did a report on retirement and retirement income and found the vast majority of retirees who are owned their home. We're in a much stronger financial position and we've known that for some time, but it's been great
to have Federal Treasury confirm that in their studies. So yeah, exactly, we're looking to do a front end essentially arrangement rather than leaving it to the back end and where it's not the intent of Super whatsoever. And it's interesting now that banks are using SUPER for that serviceability test and for elder Australians to borrow money, utilizing SUPER essentially as part of the credit assessment and not even really as
a backstop anymore. For those that are sixty years of age who are looking to borrow funds, some of the banks are very happy to use as the repayment plan. And that's an interest one because as we know, the Big four have essentially exited the funds management space. I think the last one left is Beta in their platform with Westpac, but they're still essentially getting their hands on Super in lump sums to repay that debt.
To repay the debt. That's right, and they know it's there. Of course, it's on their books. One of the things I think reading, and I have to freely admit, folks, I don't regularly read the Australian Superannuation Law bulletin, but if I could speed read, maybe i'd read it. But I have been pointed to a piece in this by Simon, and it's by Ruth Stranger, who is, as I say, a partner at Minter Ellison, a specialist in this area,
an advisor also to his operation Home super. Tell me if I'm wrong here, Simon, but it seems to me when you get through the whole thing and she comes to a conclusive what she says is there appears to be no blockage in law to what you are planning, but unfortunately the nature of the arrangements at the moment means that you can't get a sort of a binding ruling before you start, so it has to be sort of tested in real life. And that might be what's
making the super funds slow. Would that be? I may under a tracker.
Yeah, that's a fair point. But with most innovation in super with large funds, it is essentially that chicken and egg sort of scenario. Unfortunately, because OPRA do not have and this is no fault of the regulator, it's policy, and I actually really do feel for the opera staff in some of these circumstances. So there's no real window or avenue for the funds to say, hey, look, we're
testing this product, what do you think. And speaking to another gentleman recently that built a retirement income product where he had a battle with for the regulator for quite some time a number of years before they essentially stopped any action towards him because they then said, okay, this is a fair product. We understand it now. So you can, on one hand, you can get frustrated, but on the other the whole point really is to innovate. It's not
up to regulator's or the government to innovate. That's an interesting one. So yes, it would be helpful. And our discussions with OPRA, yes, they pressed us on all manner of issues from liquidity diversification and how it will all work, and couldn't find anything wrong with it, and their last space of advice was, look, we'll just keep an eye on you. So for some of the funds. They understand
how that works. Were approached by a quite a large fund just recently after Ruth string Is Peace in that law bullsm so it provided them with some confidence and they understand that process with apro. But it is, as I said, it's an interesting space in that regard where there's no avenue.
So there you are, folks. How about that that you could use your own super fund to put in equity in your own home, and that your super fund basically gets to diversify, It gets into a pretty conservative, reliable stream of investment compared to some of the stuff they're doing overseas and private equity at the moment, and you get to have less of a mortgage. I like the idea.
I'd love to see it come into play. I will say to you, Simon, if you try to create something new, it can take a long time, but it can really pay off. I'm thinking of someone like green Talk well back in all I don't know the nineteen nineties who spent years and years trying to get the first exchange treaded fund off the ground in Australia, which was the Gold Exchange Treated Fund, and of course years now on the rich list and it's the FSA are a household of things, so best of luck with it and I
hope that you get to breakthrough soon. What would be the best thing that could happen to you next?
The best thing would be for a fund to take it up and help us do some initial full investments and break the ice. Essentially, I don't see that being too far off. But yeah, look, we're not essentially inventing something here that people don't want to use it. The idea really has come from Australians and we've just listened
and worked out a prudent way to do it. It's interesting how do you get paid as a super fund or as a manager or as home super and being in the industry for a long time, there's plenty of meat on the bone. So actual return to us was the last thing I worked out and how we actually get paid. I do appreciate some comparisons to others in the market that have done really well, but no, the real driver here really is, as I said, just building
something that Australians really want and deserve. In my opinion and interesting discussion, they're about other avenues and around the world. In the US, you can take up to fifty thousand from your four oh one K plan, but it must be in the form of a loan, and roughly just over thirty percent of the US home buyers do that,
and it's actually even more convoluted. It's more restrictive. They do get to pay a slightly lower rate than they would with the bank, so they can essentially plot pay the Fed reserves rate rather than the bank's rates, but it is very convoluted. If they misrepayments, they're in all sorts of strife with the irs and the like. So we did research around the world, and yes, there's other avenues and some other countries that are a little bit
more liberal on this we've taken up. We've still taken a really prudent approach to make sure that the fund gets a commercial return and that the member does not essentially have that. And people might think of when I say have that sort of financial assist and some people might say, well, they're paying back less of the line, So there's a there's financial assystems there. But I must put the caveat on that you no longer own one
hundred percent of your home. You may only earn eighty percent and your fun owns twenty percent, so that's essentially the trade off as well.
Okay, very good, Well I wish you look stick around and we'll do some questions here. Hello, welcome back to the Australians Money Puzzle. I'm talking to Simon Jones of Home Super. You probably don't know Simon Jones. You probably don't know Home Super, but you may soon because he's
got a very ambitious plan. But it's actually quite practical, rational, and I would think that it may well get off the ground because the super funds, the big super funds might, rather than trying to squash it because it's in some way arrival to them, could actually incorporate this idea. We'll see. Okay. Question from Tim, I love the show. Have you heard of this piece of bureaucracy? I just receive this from
the read Estate administoration. Are they for real? Please note, as you may be aware, for Australian residents selling property, when the contract price is over seven fifty thousand, that is, the seller must provide an ATO clear and certificate prior to settlement, or the buyer must withhold twelve five percent of the purchase price to provide to the ATO for more information and to work certificate please click here. Thank you, Tim.
The paperwork and certification in relation to property settlement and buying and selling property remains. For all the talk of digital progress and simplification, it's still to kenzie, And as far as I'm concerned, I can't believe it. I'm talking with a friend who's buying a home at the moment and has is late to the party, has never bought a home before, and they just cannot believe how much they have to sign et cetera. Any comments on that one, Simon.
No, it's it is. It is a process, so it can be a convoluted process and very detailed. But fortunately it's such a serious commitment and there is lots of hoops to jump and contracts to song.
Imagine you're you're you're in an advanced, an elite level of paperwork, and you're what you're trying to do when you're actually trying to do something that is new to the system, as opposed to inside the system, which at least you are at least inside the system. Tin Okay, Cynthia, is it true that Sydney prices are falling? I see
no evidence whatever of this in my neighborhood. Yeah, but you probably wouldn't notice and no point two percent monthly drop in your neighborhood, Cynthia, unless you had some sort of extraordinary calculator calculator and you were counting it all up. But it is happening. That is what the big researchers are telling us. I think the interesting thing is that on a monthly basis, prices are falling ever so slightly Insidia Melbourne zero point two percent percent, something like that.
But it will accumulate, of course. And the very interesting aspect of it is that some as the rates, particularly as the rate cut forecast get pushed out into next year, they've been pushed off from February to March, from March up to me. Now you see that there is forecast now that the big cities, city and movement will actually see price detains next year somewhere between one and five percent.
And I imagine that's entirely possible. At the same time, I forget that they're getting ten percent plus just about everywhere else in the other cities, so very divided market at the moment property ways, was it always this divided simon in your experience that they're getting such different returns in different cities.
Look, I believe so it's a chemic really geographically specific certain areas, and really the main drivers are population and the capacity of that population to purchase the property. So population number one, twenty five people turning up at an oction instead of five, and those that have the capacity thanks to the lower regiest rates or borrowing capacity really are the main drivers. But we had such sensational growth throughout the COVID period and we often don't see those pullbacks,
but it happens more often than people realize. It's just that we see share market updates every evening, we don't see your specific home price update. And you can these days, yes, you can even lot onto your own bank. Some of those will give you those estimates and they don't change as quickly as as markets, and they can be quite opaque and have some ranges that seem hard to work out.
But the reality is you only really know the true value the day you buy the property and the day you sell it, and everything else is a little bit of a guestimation and that but it certainly does vary a lot more than most people realize.
Yes, I mean, look at Melbourne, it's down. It now is down this year three percent. They're talking about next year five percent. This is why Brisbane, Adelaide and Perth absolutely or seen double figure increases in the scent period that is this calendar year. Okay, finally one from Shawn. I saw that Rental Affordability Index was released. Too much gnashing of teeth in the media because rents are going up. But isn't this wonderful news for investors? Why is there
so much negativity about rents going up? Shouldn't we celebrate this win for hard working investors? Well, it depends on who you are, as full shown, If your rent's going up, you don't like it if you're paying, But if you are a property owner, then of course you like it and rentally yields. The big issue is whether you're yield is going up. That is the percentage income you get as a percentage of the AMOUNTI paid for the property. And it has inched up a little, but only ever
so slightly actually in recent times. And we will now see what happens next. If we have falling we could actually have falling prices and rents still rising. That's not impossible, but would be very unusual. Wouldn't it, Simon, It's technically possible.
And I think we often know have a look, yes, we know that landlords and investors may be affected by interest rate rises, but the actual cost of maintenance and the inflation essentially affecting some of the other things around being an investor really does have an impact on rents, And look, it is an interesting space, and I often think that the average mom and dad landlord gets a little bit of a bit of a hard time, particularly
when affordability is so tight right now. And for my mind, having an investment property, it really does favor actually a new build anyway, because there's a lot of non cash deductions and what might mean by that is depreciation on your property fixtures and fittings that investors can really assist
them for, incentivizing them to go into property. So for my mind, with respect to rents and the market in general, I really can't understand for the life of me why the government does not purely put a pause on tax benefits for negative gearing or just tax benefits generally for existing properties and just leave that door open for new builds,
your grandfather, the existing investors. But what that would do overnight would encourage a lot more local investors to invest in brand new builds and assist The number one priority in my mind is Mohans.
Okay, very interesting. Well look, thank you very much for that, Simon, and thanks very much for coming on the show. And great to hear your plans and best of luck with them.
Thank you, James, and thanks again you listeners.
Thank you, and thanks to Leah samuelglu who produced today's show. Let's have some correspondence, folks. Let's have some more questions that the property investors take over the inbox. The email is the Money Puzzle at the Australian dot com dot au. Talk to you soon.