Using superannuation to buy property

4 February 2023

Superannuation has traditionally been used as a means to save a nest egg for retirement. But more and more people are seizing the opportunity to purchase property using their super, no matter if they are first homebuyers or edging towards retirement.

Generally, superannuation can be used to purchase property in two ways – using a self-managed super fund or through the Federal Government’s First Home Saver scheme.

Having a self-managed super fund allows trustees to make a range of investments, including the option of buying investment properties; while first homebuyers can reap the benefits of using super to get a foothold in the property market by making voluntary contributions to their super fund to save for a house deposit.

Here are some considerations if you’re looking to tap into your superannuation to buy property.

Can you use super to buy a house?

Using superannuation to buy property is not as straight-forward as withdrawing money from your super fund to buy a home. However, purchasing property with superannuation is possible through a self-managed super fund or the Federal Government’s First Home Super Saver scheme.

Australians with a self-managed super fund can decide where their super is invested, be it in shares, fixed-income securities or other investments like property.

And through the First Home Super Saver scheme, first homebuyers can save for a deposit, via voluntary contributions, inside their superannuation account.

The scheme can be a good idea if you’re saving for a first home deposit and want to make the most of the tax benefits offered in superannuation. However, it is important to note you can only use voluntary super contributions that you have personally made since July 1, 2017, not the compulsory super paid by your employer.

Those keen to kick off their first property purchase by raising a deposit with their super will be subject to eligibility criteria. This includes never having owned property in Australia before and not previously making a release request under the scheme, but there is no requirement for you to be an Australian citizen, Australian resident or an Australian resident for taxation purposes.

What sort of property can I buy using my super?

Under the rules of self-managed super funds, Australians can use superannuation to buy any property, so long as it is an investment and not a home you plan to live in. This can be a residential or commercial investment, but does need to be able to be occupied by a tenant on an ongoing basis rather than a sporadic arrangement like short-stay accommodation.

If you’re a first homebuyer, the First Home Super Saver scheme limits you to buying a home you intend to live, rather than an investment, so you will need to live in the property for at least six months in the first year before you can offer it as a rental.

How much of my super can I use to buy property?

It is possible to use money from a self-managed super fund as a deposit to secure a loan for an investment property. However, borrowers are not able to use all of the funds as a deposit.

Self-managed super funds are required to keep a liquidity buffer of 10% in the fund after settlement, although this is sometimes not applied if you are refinancing or if the fund purchases additional properties.

There are also some restrictions on borrowing capacity through a self-managed super fund. For example, it is not possible to use the full balance to buy property. Banks will only loan 70% of the property value and will not allow mortgage insurance to increase the amount.

Borrowing money to buy property is often done through a Limited Recourse Borrowing Arrangement. This involves the fund trustees receiving the beneficial interest in the purchased asset, while the legal ownership is held in trust.

When it comes to the First Home Saver Scheme, a determination will be made advising of the maximum amount you can withdraw to be used as a house deposit.

The total eligible contributions that can count towards your releasable amount is $15,000 each financial year, to a maximum total of $50,000.

Seek expert advice

It’s wise to enlist the help of a professional financial advisor before you embark on plans to set up a self-managed super fund and assess potential investments you would like to make.

Establishing a self-managed super fund is a highly regulated process and you will need to set the fund up properly, understand your financial and tax responsibilities and exercise due diligence.

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