Moussa told SMSF Adviser that although the ban on limited recourse borrowing arrangements for residential property is now in force, it has not changed where investors are borrowing but rather broadened the range of investment opportunities that SMSF investors are actively considering.
“In terms of asset classes, we’re starting to see bigger interests following the budget, largely around fixed income. It’s a combination of fixed income, private credit, specialist income strategies,” Moussa said.
“We’re also seeing investors spend a bit more time looking at listed investment vehicles and professionally managed structures that basically provide access to opportunities that would be difficult or quite inefficient to access directly.”
Moussa added that one area that’s been particularly interesting is credit in general. While historically, many SMSF investors focused on property generated income, there is now growing interest in income generated through lending strategies, securitised credit, residential mortgage-backed securities (RMBS) and the broader fixed income market.
“A lot of these strategies are accessed through funds, as opposed to investors trying to manage it themselves and ensuring they’ve got direct diversification, correct levels of diversification,” he said.
“What we would do is facilitate several different funds that give investors access to these types of investments and run through the pros, the cons, the risks. The biggest change we’re noticing is that people are asking a lot more engaging questions about these types of investments, whereas in the past it was very simple; they could just go directly to property ownership.”
Moussa continued the changing nature of SMSF investing typically sees the investment journey start around fixed income and once the investor has established a broad fixed income strategy, they start to look at satellite approaches that incorporate things such as RMBS as one example to diversify broader than the “vanilla” fixed income strategy.
“For a long time, something like fixed income, for example, was just viewed as a diversification strategy. It’s got a negative correlation to equities, for example, and it’s got a low correlation to property, which they previously had as well,” he explained.
“Historically, many investors viewed fixed income as a diversification tool. One of the other interesting things that has happened as we’re getting these budget changes is yields are significantly higher, and so investors are no longer viewing credit as a tool for diversification. The returns are much more impressive, and they’re viewing it as a sustainable yield strategy, an alternative to what they would have historically just relied on through something like rental income.”
Moussa said one of the biggest hurdles for property investment has always been liquidity constraints, transaction costs to buy or sell a property, and stamp duty, but the fact that investors are broadening their investment opportunity mindset beyond property is actually exposing them to various asset classes that overcome these liquidity constraints.
“For example, bonds are no longer just a risk management tool and investors are now viewing them as a genuine source of income, which is probably one of the more notable things we’ve seen as well,” he said.
“We are also seeing an increase in interest in commercial property, but it’s probably not in the way that a lot of people expect. Rather than wanting to acquire and manage a commercial property directly, investors are just looking at professionally managed funds that basically own, lease, and operate commercial assets in a diversified way, rather than having a single asset that concentrates risk with owning the property directly.
“What we’re seeing is investors are deciding that they want commercial property exposure, but not necessarily the property management side of things.”
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