A five-fold increase in borrowing to help fund a $40 billion splurge on property for self-managed super funds has prompted the Reserve Bank of Australia to warn about further increasing investor debt-load through more borrowing.
The nation's monetary mandarins warn the spending and borrowing binge is ''raising concerns'' about exposure to increased risks, such as another market crash wiping out property values, or interest rate rises creating repayment difficulties.
But the research used by the bank and other independent analysis is based on Australian Taxation Office returns that are at least 12 months old and miss recent boom market conditions that have pushed up prices and lending.
Claire Mackay, principal of Quantum Financial, argues that lending safeguards required by the bank appear to provide more protection to the lenders, typically the retail banks, than the borrowers, some of whom are young first-time buyers.
''Leveraged property investment is viable in an overall financial strategy that takes account of a person's other assets, ability to pay and capacity to adjust to a change in circumstances,'' Ms Mackay said.
Lenders' insistence on personal guarantees for fund investment loans limits their potential loss, but could propound problems for a borrower already facing liquidity problems or debt stress on a single asset.
The percentage increase in business property held by self-managed funds has increased 90 per cent and residential property 80 per cent in the four years to 2013-14, according to the latest ATO figures. By comparison, limited recourse lending arrangements have increased 460 per cent.
The massive increase in the value of SMSF investments to about $550 billion, or about one-third of the nation's super savings, means total investments in property has more than doubled from about $37 billion to $88 billion, according to Russel Chesler, a director of Market Vectors, an exchange-traded fund specialist with about $US22 billion in assets under management.
According to additional analysis by Quantum, based on ATO figures, there was a near five-fold increase in the value of limited recourse borrowing arrangements for SMSFs between 2009 and 2014.
That is five times the increase in exposure to listed shares and 14 times the increase to unlisted shares, the analysis reveals.
It also fails to fully take account of the real estate bull market in Sydney and Melbourne during the past 12 months.
More than 34,000 new funds are established each year and the average balance is more than $1 million.
The schemes, which are jointly regulated by the Tax Office and the Australian Securities and Investments Commission, have generally been considered compliant and providing returns comparable to managed funds.
Regulators are warning of a more ''aggressive and assertive'' approach to loans and large commission payments to advisers for recommending property, which are typically off-the-plan developments.
The Reserve Bank, in its submission to the Financial System Inquiry, adds: ''Property investment by SMSFs is a new source of demand that could potentially exacerbate the property price cycle.''