The super fund debate: Will Indians take advantage?

By Indira Laisram
Representational Image // Photo by Pat Whelen on Unsplash

Melbourne-based Nikhil Banerjee remembers the decision his father took to buy a house in Delhi. His father accessed his provident fund (PF), or what we can call superannuation here, to make the purchase — ending years of shuttling around in rental properties.

“The feeling of having our own home was very special for all of us,” says Banerjee, Principal Consultant, Insight Financials Pty Ltd. “This has been historically a way for middle class families in India who have less money. So, the money sitting on the PF is used in various ways.”

With Prime Minister Scott Morrison announcing that first home buyers would be able to withdraw up to 40 per cent of their super funds, up to a maximum of $50,000, for a home deposit if the Coalition wins the election, the question on everyone’s lips is: whether investing part of one’s superannuation to help finance one’s own home is a good idea.

Welcoming Morrison’s announcement, Banerjee believes this is the best bet. The example of his father may be from a different time and place, but he has taken a leaf out of his book to realise his own dreams here. Besides, owning a house is a matter of pride and emotion, an emotion that also resonates with most Indians and those from the sub-continent.

As a mortgage broker, Banerjee has his calculations ready. He realises that most clients fall short by 10,000 to 12,000 dollars for their deposit and end up borrowing from family or friends. Sometimes they swipe their entire credit card, which then starts to accumulate as interests and one that is very high at 21 per cent. In both cases, there is a deadline for return. “A lot of people are not financially aware that this can be detrimental to their journey of wealth creation,” he says.

Therefore, believes Banerjee, this opportunity to take out a little bit of money from one’s super is working as a bridging finance. “Obviously, you will not get interest on what is not there on the super anymore, but the control is in your hands. You can decide how you can augment your savings and pay back the super if you wish to. And if you have some windfall like a tax credit or some bonuses and you pay that to the super, you are borrowing from one pocket to put into another account. There is nobody knocking on your door. So, I take it from that perspective as well.”

Nikhil Banerjee // Pic supplied

The Financial Review in March 2019 reported that at a time when growing numbers of young Australians are giving up on the home ownership dream and renting for longer, Indian migrants have underpinned the boom in housing in Melbourne’s outer suburbs.

It cited figures compiled by Red23, a real estate agency that specialises in selling land in new communities, showing 33 per cent of all housing lot sales in greater Melbourne—almost 8,000 lots a year during the peak of the boom—were buyers born in India, compared with 25.8 per cent of Australian-born buyers.

So, if anything, does it mean Indians might take advantage of Morrison’s scheme should the Coalition win the Federal elections?

Sateesh Palliyil, founder and CEO of Buyers Hub, a property buyers’ agent and vendor advocate in Melbourne, thinks otherwise. Firstly, with many Indian migrants being first generation, he thinks there is less knowledge around real estate and it is difficult to learn everything in a new country immediately.

Save for well-heeled professionals, there is less opportunity for many others to accumulate the initial deposit money, says Palliyil. “Accumulating 100,000 dollars on the super can take several years. Even for IT professionals, if the salary is 100,000 dollars, only 10,000 dollar gets added every year into the super and it will take 10 years to reach the 100,000 mark. And from that, 40 per cent means only 40,000. So again, what can you buy for 40,000 dollar? I would say by the time a person saves 50,000, the house price would have gone up too.”

However, Banerjee argues the catching up game will always be there. “Demand will push up prices but that’s again advantageous. Its cyclical, if you buy high, you will want to sell high, everything goes through a cycle of growth and rise.”

He says that taking off the money from super makes one save on the lenders mortgage insurance (LMI). “At a later stage, if there is growth in the property value, you can take out some money, buy an investment property as well, so that opens up more horizons.”

Palliyil concurs, “It is good for nonhome-owning holders of super funds investing part of their nest egg in their own home. Super growth is comparatively negligible than property prices because inflation is always high nowadays.” He adds, “There is always a benefit. People should buy as soon as possible.”

Martin North // Pic: Twitter @DFA_Analyst

The fact remains, rise of house prices has been the big talking point of Morrison’s policy, although he has said that will be mitigated by another policy encouraging senior Australians to downsize.

Martin North, Principal of Digital Finance Analytics (DFA), a boutique research, analysis and consulting firm providing advisory services to Financial Services Companies in Australia and beyond, in an interview to the ABC, says whilst all of these sorts of initiatives—where you bring people forward into the market—sound good politically and economically, unfortunately they essentially lift prices.

North says there is a big problem with property in Australia, “It is way too expensive… we don’t really address the underlying issues – the fact that we got too much credit chasing the property sector… I think we need to really stand back more strategically on how we can get back to more affordable housing because affordable housing doesn’t mean bigger house prices, it means house prices coming back to be more realistic over the long term.”

Back to the prospect of Indians buying more now, Banerjee sums up, “Beyond the emotional value of buying a house, if you look at history, Indians always want to live in their own homes. Even in villages, people might not be well-to-do from the face of it, but they have land and their own home. It’s a thing of pride.”

Connect with Indira Laisram on Twitter

Follow The Indian Sun on Twitter | InstagramFacebook


Donate To The Indian Sun

Dear Reader,

The Indian Sun is an independent organisation committed to community journalism. We have, through the years, been able to reach a wide audience especially with the growth of social media, where we also have a strong presence. With platforms such as YouTube videos, we have been able to engage in different forms of storytelling. However, the past few years, like many media organisations around the world, it has not been an easy path. We have a greater challenge. We believe community journalism is very important for a multicultural country like Australia. We’re not able to do everything, but we aim for some of the most interesting stories and journalism of quality. We call upon readers like you to support us and make any contribution. Do make a DONATION NOW so we can continue with the volume and quality journalism that we are able to practice.

Thank you for your support.

Best wishes,
Team The Indian Sun