The dream of home ownership is fading for many young people.

FOR young first home buyers struggling to scrape together enough for a deposit, seeing tens of thousands of dollars locked away in their superannuation can be painful.

But the holy grail of tapping into that cash to get a foot on the property ladder may be one step closer, following a new ruling by the Australian Taxation Office that paves the way for self-managed super fund trustees and members to invest in family property.

Under the current rules, a person’s self-managed super fund (SMSF) can’t own a property and rent it out either to themselves or someone related to them. The person also can’t buy a property off themselves using their SMSF.

According to advice provided by the ATO to DomaCom, a fractional property investment firm which allows people to buy units in a property in the same way as shares, SMSFs would not be in breach of the rules as long as the fund owned less than 50 per cent of the property.

“Basically what it means is that for the first time, a parent can use their super fund to invest in a property with their son or daughter, and the son or daughter can then rent it,” DomaCom chief executive Arthur Naoumidis said.

Mr Naoumidis says it’s the “first step” towards DomaCom’s ultimate goal of allowing young people to tap into their super to buy their first home — an idea floated by former treasurer Joe Hockey just last year.

Per the tax office’s ruling, for a $500,000 property, a parent could use their super fund to put in $200,000. The child could then put in up to $49,000, and investors would fund the remaining $251,000.

Finding those other investors, however, will be the sticking point — it may be other family members, friends, or a financial planner may tap their client base.

For the investor, the benefits are the same as owning shares in any other asset. They receive a share of the rental income relative to their unit holding, and benefit from any capital growth when it comes time to sell.

DomaCom, like recently launched fractional property investment start-up BrickX, is still in its infancy. That means, unlike on the share market, the number of property “shares” to buy and investors to buy them is low.

“This is a big-picture platform,” Mr Naoumidis said. “If this takes off and we end up having thousands of people using it, volume will create liquidity. I know Joe Public is going to struggle to understand the importance of this, but financial planners and accountants will understand.”

Mr Naoumidis said DomaCom was continuing discussions with the tax office to raise the 50 per cent limit to 100 per cent, but even at 50 per cent it was a “game changer” and “critical” for his company, which is planning to float on the stock exchange next month.

DomaCom chief executive Arthur Naoumidis.Source:News Corp Australia

“The fact is most SMSFs don’t have high enough balances for [the 50 per cent limit] to be an issue and DomaCom believes that, if successful, the limit will be increased over time as the housing affordability issue can only get bigger,” he said.

“Until this process is completed, investors will need to seek specific advice or acquire further ATO advice if they want to acquire more than 50 per cent of a specific sub-fund.”

Mr Naoumidis said the important thing was the government “recognises that there are commercial solutions to the issue of housing funding for those looking to buy property”.

Unlike the Canadian model, for example, where money is released from the pension to help people acquire their first property, “this Australian innovation keeps the asset within the superannuation environment”, he said.

Robert Coyte, chief executive of financial planning firm Shartru Wealth, said the ATO ruling would effectively allow parents to use their super balances to “put their foot on a property” for their kids without parting with a huge chunk of cash upfront.

“How most people help their kids out at the moment is they come up with a deposit,” he said. “[In] a lot of cases it’s not in the parents’ best interests to come up with a heap of dough for a deposit because they’re trying to retire themselves.

“The kids then have to go out and borrow a stackload of cash and become heavily geared. The thing that concerns me at the moment is people are quite happily running around borrowing a million bucks and thinking it’s all wonderful.

“But at those levels of leverage, there is a lot of risk involved.”

Mr Coyte said his firm had helped clients jointly invest in half a dozen properties using the fractional investment platform. He said the new ruling would give children the opportunity to start “chiselling away” by buying up an equity stake in the property while enjoying the benefits of living in it.

“Once they’ve got to a level where they’re comfortable, they can go to a bank, get finance and buy everyone else out. Ultimately that’s the aim, whether it’s five or 10 years down the road.”

frank.chung@news.com.au