From the GFC through to COVID-19, Australia’s superannuation system has ridden out numerous market downturns. These incidents tested the reliability of superannuation members, especially those nearing retirement age. Whereas most investments by traditional superannuation funds are in equities and bonds, property investment in an SMSF will provide a strong hedge against inflation-as the recent trends […]
From the GFC through to COVID-19, Australia’s superannuation system has ridden out numerous market downturns. These incidents tested the reliability of superannuation members, especially those nearing retirement age. Whereas most investments by traditional superannuation funds are in equities and bonds, property investment in an SMSF will provide a strong hedge against inflation-as the recent trends have shown in NSW and across Australia. The article talks about how super fund members were affected by market corrections, why sequencing risk matters, and how property can enhance superannuation in these inflationary times.
1. Global Financial Crisis (GFC) – 2008-2009
Global Financial Crisis (GFC)-2008-2009
During the GFC, Australian equities lost 55% of their value, which further led to significant setbacks of super funds with high exposures to shares. Many super fund members experienced declines of 20-30%, causing anxiety for those approaching retirement years.
However, property investments held in SMSFs at that time fared somewhat better. While the values did fall, the rental streams of income remained relatively steady, at least giving some financial solace. When a few years went by and the markets started to recover, property values also rebounded, reinforcing the fact that real estate provides stability in volatile markets.
2. Early 2000s Market Correction – Dot-com Bubble
International equity markets, particularly technology stocks, experienced a correction during the early 2000’s dot-com bubble. The Australian stock market or ASX fell by about 22% during that period. Australian property markets were not as directly affected, and rental yields provided a steady source of return during this period.
It underlined the value of property as a diversification tool for SMSFs, especially for those trustees keen to reduce equity market volatility. Long-term stability in Australian property proved the merits that hard assets play within a diversified superannuation portfolio.
3. COVID-19 Pandemic – 2020 Market Drop
The COVID-19 pandemic-induced immediate 35% drop in the ASX saw super fund members concerned about what such a sudden drop might have meant for their retirement savings. While the rebound was quick, the experience underlined some of the risks in relying solely on equities. Residential property was very resilient during the pandemic. The price initially had gone all over the place, but the rental income was stable. The stability, together with the early release of the super scheme by the Australian government, has meant that many SMSF trustees were able to ride out the market downturn without liquidating assets.
Property as a Hedge Against Inflation in 2024
Economies around the world, including Australia, are experiencing pressures today due to inflation. Nominal inflation in NSW has risen as high as 17%. And property markets have reacted in turn. In a correlation with inflation, rental income has reached a whole new height and is fast becoming a much sought-after hedge against higher prices. The NSW Government has recognised the pressure placed on tenants and landlords alike by permitting one increase in rents in anyone-year period. Indeed, rental income is increasingly becoming an important source of reliable cash flow.
Benefits to the SMSF members for investment in property are as follows:.
1. Hedge Against Inflation: Rental income inflates with inflation and hence maintains purchasing power.
2. Relatively Stable Cash Flow: In downturns, rental yields generally stay consistent and may protect investors from volatility.
3. Long-term Capital Growth: Historically, property prices have continued their uptrend in Australia; thus, real estate is a promising long-term investment.
4. Taxation Benefits: The rental income within super funds is only taxed at concessional rates of tax, boosting returns further.
Sequencing Risk: A Key Threat for Retirees
Sequencing risk is best described as the risk of incurring severe pre- or post-retirement market losses. This becomes a critical risk because exactly at the time retirees begin to draw down their savings is also perhaps the time when their investments might underperform. In case these sequences of market downturns are not appropriately managed, they result in permanent losses in retirement income.
By holding property in their SMSF, the members can reduce their sequencing risk. Property offers:
• Reliable Rental Income: Invariable income even at the time of market correction.
• Diversification: This reduces reliance on equities, which are very volatile.
• Flexibility: SMSF trustees have the prerogative to manage cash flows by selling their assets at opportune times whenever the market conditions are suitable.
Comparative Performance of Property and Traditional Funds
Here’s a summary of the 3-year average returns of key funds compared to a hypothetical SMSF portfolio with property, Bitcoin, and term deposits.
| Fund/Portfolio | 3-Year Average Return (%) |
| ESSSuper – Balanced Growth | 8.80 |
| Qantas Super – Growth | 8.24 |
| Australian Retirement Trust – Balanced | 8.21 |
| Hostplus – Indexed Balanced | 7.70 |
| Brighter Super – Growth Fund | 7.69 |
| SMSF Portfolio (Property, Bitcoin, Term Deposits) | 14.7 |
Conclusion: Property’s Role in a Resilient Retirement Strategy
Such a combination-diversification between property, Bitcoin, and term deposits within an SMSF would therefore create diversification of stability with potentially high returns. With Australia just experiencing inflation at the rate of 17%, property investments have become invaluable, with rental incomes equalling this rate of inflation, supported by government policies which will make such rentals sustainable in the long run. This goes hand in hand with the maintenance of purchasing power, providing long-term capital growth.
This will give security to the members who are approaching their retirement from the sequencing risk, as a property provides good income that is stable and irrelevant to the market fluctuations. While retail and industry funds can only offer predictable growth, the use of property in SMSFs offers better control and flexibility and strength during volatility.
Not all of investing in property via an SMSF is about capital growth; rather, it’s about attaining a regular income stream to weather inflation and market downturns. For these members who want to maximize their retirement savings, property is still a cornerstone investment as the financial landscape continues to evolve.
Warning: This information is general information. Seek legal and tax advice before setting up an SMSF or investing in property.
Additional Resources:
SBS News – Click Here
Forbes Article – Click Here
Related: SMSF property investment guide | SMSF administration
