Self-managed superannuation funds are showing a strong demand for off-the-plan properties but often overlook the risks associated with this type of investment.
According to property research firm RiskWise, off-the-plan properties have driven lower property values and high vacancy rates with Brisbane being a prime example.
The unit oversupply in inner city Brisbane is characterised by lower valuation and more settlement defaults, RiskWise chief executive Doron Peleg said.
"The issue of oversupply is not a new problem and has been there for a few years and the continuous weakness of the unit market in inner-city Brisbane should have raised red flags for developers and lenders," Peleg said.
"What we are seeing now is the realisation of the risk that should have been identified at least a couple of years ago. Defaults have been rising and will continue to do so."
He added SMSFs shouldn't overlook three major risks associated with off-the-plan properties: equity, cash flow and settlement risks.
Before superannuation funds buy a property, Peleg urged to identify loss of income if there's an oversupply in an area. SMSFs should find out why it's problematic to find tenants to rent the property, and which demographics the dwellings may appeal to, he said.
Westpac recently announced it will no longer offer SMSF loans. The real reason behind this move, Peleg said, is that banks want to streamline processes and Westpac sees SMSF lending as too risky.
This is more pronounced in the event retirees lose significant amounts of their pension due to failed property investment, he added.
Westpac and its subsidiaries the Bank of Melbourne, St. George Bank and BankSA will no longer offer SMSF loans effective Tuesday 31 July 2018.
"We continually review our products and services to ensure they meet the requirements of our customers," a Westpac spokesperson confirmed.