Purchasing property using super – how does it work?

Have you ever wondered if superannuation can be used to buy property? If so, and you’re keen to learn more, our guide will point you in the right direction.

Can I use super to buy property?

The short answer is… it depends on a whole range of factors.

Using super to buy a house to live in

Generally speaking, if you haven’t reached your ‘preservation age’ (between 55 and 60 years old) you can’t just withdraw your super whenever you feel like it to purchase a home to live in (unless special circumstances apply). However, first home buyers are in a slightly different category. The Federal Government’s First Home Super Saver (FHSS) scheme allows eligible first home buyers to make voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions to their super account to help them save for their first home. Saving within a super fund may help first home buyers to save at a faster rate due to the concessional tax treatment of superannuation.

Eligible first home buyers can then request to release these voluntary contributions in order to help them purchase their first home. They must occupy or intend to occupy the property for at least six months within the first 12 months of owning the home. Further eligibility criteria, terms and conditions apply. For more information on the FHSS scheme, click here.

Using super to buy an investment property

If you’re hoping to use your super to buy an investment property, you can only do this using a Self-Managed Super Fund (SMSF).

A SMSF is a private super fund that individuals manage themselves. There are strict rules around buying property using a SMSF. For example, any residential property purchased using a SMSF must only be used to provide retirement benefits and cannot be lived in by any of the fund members or their relatives. Fund members are also not allowed to use all of their super balance to purchase an investment property – a liquidity buffer must be maintained.

There is also the option of taking out a loan using a SMSF to buy an investment property, however strict borrowing conditions apply. SMSF loans generally come with higher costs, and repayments must come from within the SMSF’s bank account.

SMSF loans are set up in accordance with limited recourse borrowing arrangements (LRBA). A LRBA involves the trustee taking out a loan from a third-party lender on behalf of the super fund, outside of the SMSF structure. These funds are then used to purchase a single asset (in this case, an investment property) which is then held in a separate trust. This is done to “limit the recourse” of a lender if the loan defaults. The LRBA prevents the lender from accessing the remaining assets held in the super fund. Their rights are limited to the asset held in the separate trust.

SMSF lending is complex, so it is highly advisable to seek assistance from a qualified finance professional, such as a mortgage broker, accountant, financial planner and/or a solicitor, before making any decisions.

Using super to buy property as a retiree

In general terms, Australians can access their super once they retire and reach their ‘preservation age’ (between 55 and 60 years old depending on your date of birth). Regardless of retirement, individuals are given full access to their superannuation when they turn 65.

These funds can then be used for a house deposit or to buy property, however we highly recommend chatting to a financial professional before making any decisions. There are a range of options when it comes to using and managing your super in retirement, and we strongly suggest weighing up all of the various pros and cons and your personal circumstances before committing to a plan.

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