June 30, 2020 by Dymphna

Raiding super to buy property – I wouldn’t.

Property is already shaping as the financial destination of choice post-crisis…

One of the things I’m expecting to come out of this crisis is a “pivot to property”.

Property typically does well in a crisis. It’s a stable asset class.

Even if you look at something like the property busts in Ireland or the US during the GFC, it’s something that happened in the middle of an economic meltdown, when share markets were tanking.

Typically, property outperforms shares in a crisis, by a big margin.

And so I think we’ll see more of a pivot from equities to property – people will pull money out of shares and put it into property.

After the GFC, Australian property got a lot of lift out of this ‘safehaven flow’.

And I don’t expect this crisis to be any different.

In fact, it’s already started. People have started pulling their money out of super to put into property. From Business Insider:

Some Australians have been trying to exploit the government’s flawed super withdrawal scheme to get onto the property ladder.

There’s been no shortage of Australians who have taken advantage of the scheme to cobble together a home deposit as the scheme fails to properly vet applicants.

Mortgage brokers have confirmed to Business Insider Australia that they are receiving loan applications, some daily, in which a $10,000 or $20,000 deposit has been withdrawn from a superannuation account.

“Over the past two weeks, myself and other brokers I work with have interviewed many prospective buyers who have accessed the $10,000 – [or] $20,000 if a couple – to use as the deposit for a home, when their income has been unaffected,” one broker said, asking for their name not to be published.

Several brokers who spoke to Business Insider Australia shared similar experiences, saying applicants coming from all walks of life, including mining, manufacturing, transport and even government employees.

Remember that money in superannuation is largely invested in the share market.

So when people pull money out of super, they’re pulling it out of the share market, and pivoting it into property.

They reckon, and not without reason, that they’d rather have their money in a house than invested in the market.

Right now, as a second wave threatens Australia and the US, I don’t blame them.

Now, do I recommend raiding your super to help boost your deposit?

No. I do not.

Why not?

Because while this super access scheme was cobbled together in an emergency and the policing of access was pretty lax, the ATO has said that they’ll be reviewing cases.

If you accessed your super without a substantial loss of earnings, the ATO will treat the $10K you accessed as “taxable income”.

That is, they might want a good chunk of it back.

And if you lied to the ATO about your financial circumstances, then you could be fined $12,000 for EACH misleading statement you made.

So don’t do it. It’s just not worth it.

There are better ways to apply your creativity to get in to property.

Just ask me.