Leveraged product draws planners into property equation

Macquarie Relationship Banking is defying the ongoing debate over geared borrowing within self-managed superannuation funds (SMSFs) to launch a new product designed to allow SMSFs to invest in residential property.

However, Macquarie believes the product, Macquarie Property Lever, will gain the acceptance of many of the critics of leveraged investments within superannuation funds because of its relatively conservative gearing and because accessing it will require the use of a financial adviser.

The executive director of Macquarie Relationship Banking, Dean Firth, argues the product will work to more closely align financial advisers with residential property investment.

Referring to the current debate over whether, notwithstanding last year’s legislative changes, leverage should be allowed within superannuation, Firth said: “Our interpretation of that is not so much whether it’s a bad concept but at what point it becomes a volatile one. We just don’t think aggressive gearing should live inside a super fund.”

He said that he believed the product served to create a nexus between residential property investment and financial planners.

“We’ve had a number of discussions with stakeholders and, whether it was real estate agents, family or property developers, there was no consistent view on advice and who people should go to,” Firth said. “The structure of this product requires the provider be appropriately AFSL [Australian Financial Services Licence] qualified.”

He said that, with the exception of direct Macquarie Bank clients with SMSFs, it was envisaged that the majority of people accessing the product would come via the intermediated channel.

Firth said that while the highly conservative nature of the gearing represented a key differentiator for the new product, the other differentiating factor was that clients could actually choose the residential property in which they wanted to invest.

Provided the property met the appropriate criteria, Macquarie Property Lever would contribute up to 50 per cent of the purchase price, plus 5 per cent to cover statutory fees, with the client’s SMSF contributing the additional funds.

The property is then purchased by a security trustee and held on trust for the SMSF albeit that the SMSF receives all income and pays the costs of the property and loan and all fees.