28/07/2026
❓What the SMSF borrowing changes actually mean
I've written a lot of SMSF loans over the last 20 years. Most of them weren't for the people you'd expect.
They were for everyday people, like a sparky in Buderim who'd been putting a bit extra into super since his late twenties. A husband-and-wife physio practice from Kawana. And a builder who'd never trusted the share market a day in his life and wasn't about to start at 58. None of them were wealthy investors looking for their next major investment, they were just regular people wanting more control over their future.
They were people who'd looked at a super statement full of things they didn't understand with limited trust in the system and decided they'd rather own something they could touch and fee, and drive past.
Most just wanted to regain control of what their fund invested in and have the benefit of leverage for their hard-earned Super funds. They understand property, and prefer the concept over managed funds typically seen in an Industry Superfund
Unfortunately, the option of borrowing has just closed for new residential purchases in Super.
So what's actually changed?
On 23 June the bill passed with Greens support, and new Limited Recourse Borrowing Arrangements for residential property inside an SMSF are off the table. Existing LRBAs are grandfathered. Purchases under contract already in motion get a transition window.
Worth being precise here, because your SMSF can still own residential property. It can also still buy residential property outright with cash. What it can't do is borrow to get there. Which without the benefit of gearing, this totally undermines one of the key advantages of property investment.
The impact was sudden
I had four conversations in the first five days that all sounded roughly the same from confused and frustrated clients.
Two of them were mid-application. Contracts already signed, valuation ordered. No problem.
One had been contributing extra for six years specifically to hit a deposit threshold. Hit it in April. Was going to buy in the next few months. Now forced to rush into something before the looming deadline, or change his strategy completely.
The fourth just wanted to know if his existing loan was safe. It is. But the fact he had to ask tells you how much confidence this has knocked out of the sector.
That's the part I keep coming back to. The rule change is one thing. The message it sends - the goalposts can move, and they can move fast - does damage that goes well beyond LRBAs. Why is it that Superannuation in general is used to continually further politicians’ whims.
The numbers don't really support the story
Here's what makes it hard to defend on the merits.
There are north of 650,000 SMSFs in Australia now, 1.2 million-odd members, more than $1 trillion in assets. Close to 30 per cent hold direct property, worth something like $74 billion.
Sounds enormous. Then you put it next to the residential mortgage market and SMSFs account for roughly 1 per cent of total housing mortgages, and under half a per cent of new residential borrowing.
These are not speculative investors chasing quick profits. They are often small business owners, tradespeople, professionals, farmers, and self-employed Australians seeking greater control over their retirement savings.
You could delete SMSF residential lending from the country entirely and the auction results next Saturday would look identical.
And there's a wrinkle nobody seems keen to discuss. When an SMSF buys a house, that house almost always becomes a rental. The fund needs the yield - that's the entire point of the strategy. So the property doesn't vanish from the housing system, it lands in the rental pool. At a time when vacancy rates are about as tight as anyone can remember, removing a source of rental stock to help affordability is a strange bit of arithmetic.
What we might have actually lost
Diversification, mostly.
A lot of SMSF portfolios are stacked with Australian equities and managed funds. Property was the counterweight. It's slow, it's illiquid, it's a hassle - and it doesn't move in unison with the ASX when the ASX has a bad quarter. For a member ten or fifteen years from retirement, that lack of correlation is worth real money.
Then there's the cash flow. Rent lands in the fund monthly. It's imperfect, it has vacancies and it has repairs, but it's a rhythm retirees can plan around in a way that dividend timing doesn't always allow.
Which brings us to commercial
Here's the bit worth paying attention to, because I think it's where this story goes next.
Commercial property is untouched. An SMSF can still use an LRBA to acquire commercial premises. The business real property rules still stand, which means a small business owner can still have their fund buy the warehouse, the clinic, the workshop - and then lease it back to their own business at market rent. Rent leaves the business, lands in the fund, builds the retirement balance. It's one of the genuinely elegant structures in Australian tax law and it survived intact.
I'd put money on that option getting a lot busier. But — and I'll say this to every client who asks — commercial is not residential and comes with different risks. The risk profile is a different animal:
1. Vacancies are often measured in months, not weeks. A house in a decent suburb re-lets in a fortnight. An industrial unit can sit empty for six months or longer, and the fund still has to service the loan the whole time.
2. Lenders want more skin. Expect 65–70 per cent LVR against 80 per cent territory on resi, on shorter terms and at higher rates.
3. Valuations are yield-driven. Lose the tenant and you haven't just lost income, you've often moved the valuation. Two things go wrong at once.
4. Tenant concentration is total. One tenant, one lease. There's no diversification inside a single asset.
5. The related-party angle cuts both ways. If your business is the tenant and your business has a rough year, your super fund's income has a rough year at exactly the same moment. That's correlation you didn't budget for.
6. Liquidity is thin. A three-bedroom house always has a buyer at some price. A specialised commercial unit in a regional centre might not, and sales times can be significantly longer.
None of that makes commercial a bad idea. Done properly, with the right tenant covenant, a real liquidity buffer inside the fund, and an investment strategy that actually contemplates a long vacancy, it can work beautifully — and it has for thousands of small business owners.
What worries me is the strategy. Investors who wanted a house, can't have one, and go looking for the next thing the rules still allow. Product-led decisions rather than strategy-led ones. That's how people end up in assets they don't understand.
If you're in that camp, the question to sit with isn't "what can my fund still borrow for." It's "what does this fund actually need to own to get me where I'm going." Sometimes the answer is a commercial property. Sometimes it's not property at all.
Happy to talk it through either way.
