A SMSF can undertake a property development with a related party or alternatively, unrelated third party via a JV arrangement. This is a viable strategy if all parties undertake the venture in a well structured and proper way.

Consider a scenario whereby a SMSF may already be the owner of the land and wants to develop the land into more than one dwelling such as apartments or townhouses, but it does not have the money to do carry out the development.

If a related party, whether a family trust or individuals, has the funds or can borrow using their own assets as security, then the two parties enter into a JV arrangement with the SMSF puts up the land and the related party puts up the cash to fund the development.

Each party would share a defined interest in the completed units such as each party may own two units each upon completion in a 4 unit development or each party may have a 50 per cent interest in the completed units as tenants in common.

JV arrangements involving SMSFs is not for the faint-hearted. It is critical that the joint venture parties enter into a properly drafted JV Agreement and undertake the venture in an arm’s length way from start to finish. Also, it is important to note that the SMSF may not borrow itself to develop the land or use the land as security for the related party to raise funds from a bank or any lender. This will cause in-house asset breaches under the Superannuation Industry (Supervision) Act. As stated above, borrowings can be raised by the related or unrelated joint-venture party using their own assets as security.

JV’s are a good way for all parties to come together and develop property to increase their capital base as long as the arrangement is structured properly and not breaching any super fund laws where SMSFs are involved.