Dear Client
As always, I hope this email finds you well.
IMPORTANT UPDATE: FEDERAL SUPERANNUATION CHANGES & IMPACT ON PROPERTY OWNERS IN SMSF’s
Recent developments in federal government policy could significantly impact some property owners—particularly those holding residential or commercial real estate within a Self-Managed Superannuation Fund (SMSF).
Federal Superannuation Changes: What You Need to Know
The government has announced its intention to impose a new tax on superannuation balances exceeding $3 million, set to take effect from 1 July 2025. Specifically, individuals whose total super balance exceeds this threshold will face an additional 15% tax on earnings attributable to the portion above $3 million—effectively increasing the tax on earnings from 15% to 30% for high-balance accounts.
While this may not affect all SMSF members immediately, many landlords with real estate investments held within their SMSF—especially commercial and residential property in high-growth areas—could reach or surpass this threshold as property values appreciate over time.
Real Estate in SMSFs: Valuation and Liquidity Challenges
One key concern is how unrealised gains—such as the increase in property values—will be assessed under the new rules. Unlike shares or cash, property is illiquid and subject to valuation fluctuations. This presents challenges for SMSF trustees who may be taxed on gains that have not yet been realised through a sale or rental income.
For property owners, particularly those holding a significant portion of their SMSF in real estate, this could lead to unintended tax consequences—especially if the fund must find liquidity to cover the extra tax burden.
The $3 Million Threshold: Lack of Indexation and Intergenerational Effects
Another important aspect to note is that the $3 million cap is not indexed to inflation. Over time, more Australians—particularly younger generations investing in property through SMSFs—may find themselves impacted by this threshold simply due to natural asset appreciation and inflation, rather than due to exceptionally high earnings.
This lack of indexation means that what is considered a “high balance” today could become more common in the future, capturing a wider group of Australians than originally intended. It may also discourage some from using superannuation for long-term property investment, despite its proven benefits for retirement planning.
What You Can Do
If you hold property within your SMSF—or are considering doing so—it may be a good time to review your fund’s structure, asset allocation, and long-term strategy with your financial adviser or accountant. Being proactive now could help avoid surprises down the line and ensure your retirement planning remains on track.
Please don’t hesitate to reach out if you’d like to discuss these changes in more detail or need assistance connecting with a professional adviser. To this end we will be running our quarterly investor night (9 July 2025) and discussing these changes as well as general financial planning advice.
2-BEDROOM DWELLINGS LEAD MARKET IN PRICE AND RENT GROWTH
Two-bedroom properties are outpacing traditional houses in both price and rental growth, driven by shifting lifestyles, affordability pressures, and growing demand for low-maintenance living, according to new data from the Real Estate Institute of Australia (REIA).
The REIA’s Real Estate Market Facts report for the March quarter revealed that smaller dwellings—typically units and townhouses—are leading the market. Nationally, these properties recorded a 1.1% price increase, reaching a median of $702,315.
Capital City Highlights:
• Hobart posted the strongest growth for smaller dwellings, up 7.5% to $576,500.
• Brisbane followed with a 4.5% rise to $680,000.
• Perth and Darwin each saw a 2.8% increase, reaching $555,000 and $380,500, respectively.
• Canberra was the only city to experience a decline, with a 3.4% drop to $604,000.
REIA President Leanne Pilkington attributes the trend to “changing household dynamics, affordability concerns, and a preference for easier-to-maintain homes.”
Sydney remains the most expensive city for other dwellings, with a median price of $823,467—17.3% above the national median. Darwin remains the most affordable at $380,500, 45.8% below the national median.
House Prices Show Mixed Results:
Nationally, house prices increased by 1.1% over the quarter to $1,079,017, a 4.7% annual rise.
• Darwin led house price growth at 2.9% ($562,000), followed by Melbourne (2.7% to $922,500) and Sydney (1.7% to $1,691,731).
• However, prices declined in several capitals:
o Hobart: -1.3% to $735,000
o Perth & Canberra: -1% to $790,000 and $970,000
o Adelaide: -0.3% to $847,000
o Brisbane: -0.4% to $910,000
Rental Market Mirrors Sales Trends:
Rental prices for two-bedroom dwellings surged 3.5% to $648 per week, outpacing the 0.6% rise for three-bedroom houses, which now average $628.
• Melbourne saw the largest jump in two-bedroom rents, up 8.7%.
• Perth followed with a 4.8% increase.
• Other capitals recorded more modest gains, while Sydney rents remained stable.
Vacancy rates stayed low in most capitals, underscoring strong rental demand:
• Adelaide: 0.6%
• Brisbane: 0.9%
• Canberra: 1.6%
However, vacancies rose slightly in Melbourne and Perth to 2.5%, and Darwin had the highest rate at 2.9%.
Outlook:
“With rising prices, strong rental demand, and tight vacancy rates, smaller dwellings are emerging as a strategic choice for both investors and downsizers,” Pilkington said.
She added that two-bedroom homes are becoming increasingly preferred due to affordability and changing demographic needs, reflecting a broader shift toward more flexible and efficient living.
www.realestatebusiness.com.au accessed 19/6/25
Thank you for your ongoing support!
Regards David, Benjamin & the Team at DB Philpott Real Estate
