Self-managed super fund property investment

Our unique product allows people with a SMSF to build their property investment portfolio through property development.

Are you one of the many Australians who have contemplated buying or redeveloping property through your self-managed super fund?

However, as you may have discovered self-managed super fund property investment and redevelopment is a complex process and often your plans are halted before they even start. There is no denying that the rules associated with a self-managed super fund can make developing property owned through a SMSF a challenging process. There are many factors and legislation/compliance issues that come into play, including who is responsible for the development, how will it be funded and questions regarding the distribution of profits and taxation. Development Exchange makes self-managed super fund property investment possible.

Who is eligible

Avoid the pitfalls of developing property yourself

Even when a SMSF isn’t in the picture, developing property is a complicated process. Most people are inexperienced and don’t have the building acumen to solely take on a redevelopment project. When you partner with Development Exchange, we take care of the entire development cycle from applications to planning, design, construction, legal documentation, approvals and more. If you are wanting to undertake property development through your SMSF, our done for you approach offers a risk-free opportunity to grow your self-managed super fund property investments.

How you can develop a property owned by your self-managed super fund with Development Exchange

When considering the rules and regulations associated with self-managed super fund property development, four main structures can be explored.

Owning the property outright and contracting a builder to undertake construction.
Becoming a partner in a joint venture with others to undertake the project.
Investing in a company or unit trust that will undertake the purchase and development of the property.
Lending funds to a developer to undertake the development via one of the above structures.

By far, the simplest option is when your SMSF owns the property outright and you engage a third party property developer, such as Development Exchange to undertake the development on your behalf. This structure avoids the potential legislative breaches around ‘related party transactions.’ One way this can be done is through a joint venture or partnership whereby the SMSF buys the land and partners with a builder to do the actual construction or improvements. This could be considered the safest option and the one with the least compliance issues.

Whilst that may solve one part of the process, there is still the problem of how the development will be financed. Current legislation prevents direct lending to a self-managed super fund for the purpose of redevelopment. For many, the process stops here, as, without the ability to fund the development directly out of their SMSF, it is unable to go ahead. But with Development Exchange it can be possible.

Our industry first product covers all the costs associated with the development of your property. There is no requirement for your SMSF to borrow funds, incur costs directly or show any financial capacity, or hold any liability. We make self-managed super fund property investment possible. With Development Exchange we take out any direct funding required for redevelopment, clearing the path for property development through your SMSF in line with current legislative requirements.

What if the property isn’t owned outright? Can we still redevelop?

It is common for many people with a SMSF to have purchased property using a Limited Borrowing Recourse Arrangement (LRBA) loan.

If you are intending to undertake the development of the property with the goal to sell, redevelopment is generally off the cards as it changes the nature and characteristics of the property, which is not permitted under Section 67A and 67B of the SIS Act. Equally, if the property has been purchased using an LRBA loan, the loan needs to be settled before any development can occur. This is where many redevelopment plans become unstuck as many people find their SMSF doesn’t have the financial capabilities to pay out the loan and also pay for the development costs.

This is where Development Exchange comes in. Due to the unique structure of our property development product, your SMSF is no longer the borrower removing all legislative issues relating to a potential LRBA loan. Your SMSF will hold no liability over the new loan in the event the loan is called into question, or a problem arises. When you partner with us, we pay out the existing loan and refinance under Development Exchange.

The process would look like this:

SMSF has land/property with an LRBA loan in place.
You sign a contract with Development Exchange to undertake redevelopment.
We lodge a caveat on the property title preventing any other transactions.
The development application is lodged and approved.
Our unique performance bond is put into action ensuring a risk-free process.
Development Exchange secures a development loan for the construction of the new dwellings.
We pay out your current SMSF mortgage/LRBA loan, removing the block to redevelopment.
We lodge a new mortgage against the property securing its contractual position, development rights and performance bond.

Disclaimer: Trustees should seek financial and legal advice prior to undertaking property development in their SMSFs. While every care has been taken in the preparation of this article, Development Exchange Pty Ltd (ABN 64 629 291 569) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This information has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of Development Exchange.