For many years, borrowing through a self-managed super fund to purchase property was a strategy considered by some trustees seeking direct property exposure. However, changes to limited recourse borrowing arrangements have altered the way SMSF members approach future property purchases.

From 10 August 2026, new limited recourse borrowing arrangements (LRBAs) can no longer be used to acquire standard residential Investment properties. Borrowing to acquire real property is now limited to premises used wholly and exclusively in carrying on a business.

The change does not prevent SMSFs from owning residential property, but it changes how those purchases can be funded. For trustees considering their next investment decision, understanding the new borrowing environment is important.

What actually changed

The reform focuses on one specific mechanism: borrowing through a limited recourse borrowing arrangement.

Under an LRBA, an SMSF borrows money to acquire an asset that is held in a separate holding trust. The lender’s recourse is generally limited to that asset, meaning other fund Assets are protected if the Loan cannot be repaid.

From 10 August 2026, new LRBAs cannot be used to purchase standard residential investment properties.

However, this is not a complete ban on residential property ownership by SMSFs. A fund with sufficient available Capital can still purchase residential property without borrowing, provided the investment complies with Superannuation rules.

The key change is the removal of new borrowing capacity for that category of property.

Why the next purchase looks different

Many SMSF property strategies previously relied on leverage. Borrowing allowed some funds to acquire larger assets without having the full purchase price available upfront.

Without the ability to establish new residential property LRBAs, trustees considering residential purchases need to assess whether the fund has enough cash and Liquid assets to complete the transaction without borrowing.

This changes the practical calculation. A fund needs to consider not only the property price but also Acquisition costs, ongoing expenses and the effect on overall liquidity.

For some trustees, this may mean delaying a purchase while building additional capital. Others may reconsider whether direct residential property remains suitable given the concentration and Liquidity considerations involved.

The Options that remain open

The borrowing restriction does not remove all property investment options for SMSFs.

A fund may still use an LRBA to acquire Business real property, which generally refers to land and buildings used wholly and exclusively in carrying on a business.

Examples may include:

  • commercial offices;
  • warehouses;
  • retail premises;
  • consulting rooms.

For business owners, acquiring their own commercial premises through an SMSF may remain a consideration where the relevant rules and requirements are satisfied.

SMSFs can also purchase residential property without borrowing, provided the investment complies with superannuation legislation.

Some trustees may also consider indirect property exposure through listed property investments, property trusts or diversified property funds.

Each option involves different considerations around control, liquidity, costs and diversification.

Costs, risks and diversification

Direct property has always required careful consideration within an SMSF.

Property can be illiquid, difficult to sell quickly and may represent a significant portion of a smaller fund’s assets.

Removing Leverage changes the risk profile. A geared investment increases exposure to both potential gains and losses, while an ungeared property may tie up a large amount of capital in a single asset.

Trustees need to consider how any property decision aligns with the fund’s investment strategy.

SMSF investment strategies must consider factors including diversification, liquidity, risk and the fund’s ability to meet member obligations such as pension payments.

A fund heavily concentrated in one property may have limited flexibility if circumstances change, such as a member entering retirement or needing access to benefits.

Getting the timing and advice right

Timing is an important consideration for trustees who were already considering a property purchase.

Arrangements established before 10 August 2026 may continue to qualify where relevant requirements were satisfied before commencement. However, preliminary discussions, finance approvals or unsigned agreements may not be sufficient.

Trustees involved in transactions around the commencement date should confirm the status of their arrangements rather than assume they are protected.

Because SMSF borrowing, property ownership and trust structures involve technical requirements, professional advice may be appropriate before entering into significant transactions.

How lenders and the market are responding

The lending environment has also adjusted to the rule changes.

Some lenders offering SMSF residential loan products have reviewed their approach as the number of eligible new borrowers changes.

Trustees who previously assumed SMSF property finance would remain readily available may now need to consider different funding arrangements.

For business real property purchases, borrowing remains possible where requirements are met, but lenders still apply their own Credit assessments, valuation processes and lending criteria.

The practical impact is that regulatory changes affect not only what is permitted but also how lenders approach these transactions.

Practical takeaway

The borrowing changes have not ended SMSF property investment, but they have changed the way trustees need to think about it.

New residential property purchases generally require sufficient available capital rather than new SMSF borrowing arrangements, while borrowing remains focused on qualifying business real property.

Before making a property decision, trustees should consider funding sources, liquidity, Diversification and how the investment fits within the fund’s broader strategy.