SMSFs and Property: What You Can (and Can’t) Do Under Current Rules

Self‑Managed Superannuation Funds can invest in commercial property, and they can borrow to do so under a Limited Recourse Borrowing Arrangement (LRBA).

However, SMSFs can no longer borrow to invest in residential property unless the property is used solely for business purposes. This means:

• Commercial property is allowed
• Residential property is excluded
• Mixed‑use property is only allowed if the residential portion is not used for private purposes

These rules are designed to protect retirement savings and reduce risk for trustees.

What You Need Before Your SMSF Can Buy Property

To purchase property through your SMSF, your fund must have:

• Sufficient capital for the deposit and costs
• Strong cashflow from earnings and contributions
• Evidence of regular contributions, which lenders require before approving any SMSF loan

Even with commercial property allowed, the process is still complex — and mistakes can be costly.

How We Got Here

In the late 2000s, banks successfully lobbied the Federal Government to allow SMSFs to borrow for property investment. This opened the door for SMSFs to purchase residential property using borrowed funds.

The result was a surge in borrowing:

• By 30 June 2016, SMSFs held $19.5 billion in borrowings
• Borrowing represented 3% of total SMSF assets
• Average loan sizes grew from $356,000 in 2012 to $372,000 in 2016

Property spruikers also entered the market, promoting residential developments to SMSF trustees who were eager not to miss out on promised growth.

Many trustees ended up heavily concentrated in a single asset class — residential property — often without fully understanding the risks.

Today, legislation has tightened significantly to protect trustees and retirement savings.

If You’re Considering Property in Your SMSF

Getting the right advice is essential. SMSF property investment — even when allowed — is not simple, and the consequences of getting it wrong can be expensive and difficult to unwind.

You need guidance from someone who is on your side, understands the legislation, and can help you structure your fund correctly.

For an obligation free chat, call us today on  03 9416 2065 or send us a quick message and we will get back to you promptly.