SMSF Borrowing Reform Hiding Risks, Opportunities for Property Sector

Housing tax reforms proposed in the Federal Budget have cleared the Senate with Greens support. Those reforms include axing the ability of Self-Managed Superannuation Funds to borrow for investing in residential property, raising questions about where billions of dollars in investor capital will flow next. The changes have prompted warnings from the industry that a source of development finance is being cut off at a time of chronic housing undersupply. Shadow housing minister Andrew Bragg, who says SMSFs account for about 30 per cent of apartment pre-sales, has called an industry roundtable for July 1 to discuss the potential impacts of the reforms. Attention is now turning to the commercial property sector, where SMSFs may still access leveraged investment products, and the consumer protection available to those investors. The vehicle, known as Limited Recourse Borrowing Arrangements (LRBAs), was a relatively niche instrument, but one which industry stakeholders say may have outsized impacts. HIA chief economist Tim Reardon said that the reforms, which will take effect for contracts executed after August 10, have “introduced another measure that restricts another source of private capital used to finance new housing, yet no assessment has been released showing what this will mean for future housing supply”. “The loss of one source of investment can affect far more than the individual dwelling ultimately purchased,” Reardon said. “SMSFs do not create additional demand for housing because they do not live in the homes they help finance. They provide another source of capital that allows new homes to be built.” While the Big 4 banks pulled out of LRBA products almost a decade ago , with Commbank the last to close its books to new loans in October 2018, SMSF buyers remain a key market for off-the-plan homes. The withdrawal of major lenders from LRBAs was attributed to a downturn in the property market , rather than a risk of financial contagion from bad loans, consumer protection, or any other factors. ▲ Affordability has been the focus of the tax reforms, but there may be unintended impacts, industry stakeholders said. However, smaller lenders are still active in the sector, which has been growing. The ATO’s SMSF Quarterly Statistical Report, last updated with March 2026 figures, shows that the sector has $80.4 billion allocated to LRBAs. About $120 billion is held in non-residential real property, and about $62.7 billion in residential property. Another $700 million is held in overseas properties. In the September 2020 quarter, by comparison, about $52.4 billion was allocated to LRBAs, about $71.8 billion to non-residential property, and $38.5 billion to residential property. In announcing the reform, the Greens argued it would prevent investors from “exploiting a loophole to use Self-Managed Super Funds to buy up tax-advantaged investment properties”. SMSF vulnerability still unaddressed A Parliamentary inquiry into Capital Gains Tax, which tabled its report in March 2026 and laid the basis for the tax reforms in the Budget, heard that exempting SMSFs could lead to greater investment from those vehicles. In turn, trustees were at risk of falling under pressure tactics from lead generators. SMSF Association chief executive Peter Burgess said that “treating SMSFs as the problem mischaracterises the issue and risks directing reform away from the conduct that causes the harm—it can lead to wrong conclusions and wrong solutions”. ▲ SMSF investors were a key plank of some developers’ pre-sales campaigns. “Imposing new standards or investment restrictions on SMSFs in response to these concerns could have broader consequences... There is a real risk that blunt policy responses introduce permanent constraints on trustee choice, without improving consumer outcomes,” Burgess said. “The focus should be on those who exploit consumers through aggressive marketing, lead generation schemes, and poor advice practices.” CPA Australia superannuation lead Richard Webb told The Urban Developer that the government had conflated the impacts of LRBAs with lead generation risks. “Does it improve consumer protection, though? I think it may address some of the risks that are there involving leverage... but our concern is that it doesn’t address where much the harm actually originates and that is upstream in unregulated lead generation of sales practices,” Webb says. ▲ The LRBA sector continues to grow, despite the exit of major lenders. While Webb says that the impacts of the LRBA reform are too complex to predict, CPA Australia is disappointed that the superannuation sector has been affected by the government’s housing tax reform agenda at all. However, SMSFs will still be able to access “business real” (or commercial) property with leveraged financial products. Residential property can also still be purchased and held outright. “If you’re a trustee of a larger fund... that option of actually just taking the cash and buying a property outright will still be available to them,” Webb says. Commercial property opportunity, but risks remain SMSFs are now likely to shift their attention, and their investments, to non-residential property, rather than disappearing from the property sector. Ray White Commercial Western Sydney director Joseph Assaf told The Urban Developer that interest from that investor base has been steadily ticking upwards, driven by fundamentals rather than the news cycle. “We are seeing increased enquiry and demand from both SMSF investors and SME owner-occupiers for small-format industrial strata assets,” Assaf says. ▲ Assaf said that small-format industrial strata may become a target for SMSF trustees wielding LRBAs. “Industrial strata typically provide the most accessible entry point into commercial real estate due to its lower price point and straightforward investment profile. For that reason, we expect the majority of demand to be directed towards this sector. “More sophisticated and well-capitalised investors are likely to target larger commercial assets such as unit blocks, boarding houses, and retail or medical investments.” However, the housing tax reforms have added urgency to the shift in investment allocation. In the week following the announcement, two under-development projects marketed by Assaf sold 10 per cent of their stock. “There has been a noticeable spike in activity since the announcement. However, we see this as one of several contributing factors rather than a standalone driver,” Assaf says. SMSF buyers are looking for “well-located new developments, particularly off-the-plan projects, where buyers have greater flexibility in unit size, specification, settlement timing and depreciation benefits”. ▲ Large-scale, actively-managed residential assets may or may not qualify as business real property, but there’s no ambiguity about sheds. Assaf says that SMSF investors have the nous to understand the switch to a different asset class. “Commercial property does require a different mindset; however, many of the underlying investment fundamentals remain the same.” A joint CPA Australia parliamentary submission on lead generation, with Chartered Accountants ANZ and the Institute of Public Accountants, argued that regulators should be aware that pushy sales tactics are “just as real a risk with business real property as it would be residential property,” Webb says. Policy responses should “address the root causes of consumer harm rather than knee jerk responses to some of the symptoms that come about later on down the chain”. ▲ Small warehouses may replace apartments for SMSF investors, but must be considered and treated differently. Assaf sees both opportunities and risks emerging from the LRBA reforms, and the potential rearrangement of that $80 billion in SMSF property loans. “For industrial strata, that could improve market liquidity and support further development activity in a sector where supply has struggled to keep pace with demand,” Assaf says. “The challenge will be ensuring buyers remain focused on asset quality rather than simply chasing an alternative investment.”

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Patrick Lau
Tue 30 Jun 26

SMSF Borrowing Reform Hiding Risks, Opportunities for Property Sector

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