Legislative changes to borrowing for self-managed superannuation funds (SMSFs) will soon come into effect.
In this post, we outline the changes and the impact they may have on the residential property market.
Background
Super funds are not generally allowed to borrow for residential investments. But an exemption had, until now, allowed SMSFs to access limited-recourse borrowing arrangements (LRBAs) to invest in single assets like residential or commercial property.
That is set to change from 10 August 2026.
The Details
The Federal Government has announced that new LRBAs for residential property purchases through SMSFs will no longer be allowed.
It is worth noting that this will not affect commercial property purchased, nor will it affect any LRBAs already in place – existing arrangements will be grandfathered. In addition, transitional arrangements are expected to be put in place for any transactions already in progress but not yet completed.
The decision to remove the exemption has caught many by surprise, with no period of consultation offered.
According to the Urban Development Institute of Australia (UDIA), these changes could remove more than 40,000 new homes from Australia’s housing supply.
The Impact
UDIA national president Oscar Stanley noted in the Australian Financial Review that “SMSF investors added to the stock of rental property when they bought new homes as they were not permitted to live in the dwelling themselves.”
According to Treasury modelling, around 4,000 loans are provided to SMSFs per year. However, industry experts believe the real figure to be much higher. SMSF investors are a sizeable source of funding for new developments, contributing around 30% of apartment presales, and are critical to the early stages of funding residential construction projects.
What’s Next?
In our recent blog post, As Investors Leave Bendigo’s Rental Market, Those Who Stay Could Be the Biggest Winners, we wrote about investor sentiment and rental supply. These legislative changes may further reduce the supply of rental properties entering the market at a time when rental vacancy rates are already low.
The changes are coming. And soon. We’ll just have to wait and see.
Want to learn more about these changes? We recommend starting with these articles:
- SMSF borrowing ban risks missing the real problem | CPA Australia
- SMSF property shake-up: what the new rules mean for investors – latest investment news | API Magazine
- SMSF borrowing ban: UDIA warns Labor plan will cut 40,000 new homes from Australian housing supply | Australian Financial Review (subscription required to read)
