New Residential Property Loans Banned in SMSFs (and why this may be a blessing in disguise for many investors).
- Jun 26
- 3 min read
The government is set to ban new loans for residential property purchases in SMSFs from the 45th day after the bill is passed and receives Royal Assent (approximately post August 2026). Existing residential property loans in SMSFs will be grandfathered.
Whilst this may sounds like bad news for investors, it may actually be a blessing in disguise. And the reason is not due this change in the law, but rather, an issue that has been compounding for many years. SMSF interest rates have been becoming less and less competitive over the years due to lower competition, and the interest rates are now often around 7, 8 or even 9% per annum. You then add in property costs, accounting costs and land tax and the costs can start to outweigh even the good residential investment properties.
James O’Reilly, has done a deep dive into this which you can read here. To frame it another way, having been in advice for 14 years, I have never seen a super fund generate no returns for their members over a 10 year period.
Have I seen clients purchase off the plan apartments in their SMSF that are worth the same 10 years later? Plenty!
So, if you don’t know how to purchase good property it is simply a risk not worth taking because you have all of your eggs in one basket and your super fund is no longer diversified.
Any one specific asset can cause the ‘floor’ of investment returns to be extremely low, so I am not just picking on property. If your SMSF was made up of 100% CSL shares, it is down 59% over the last 5 years. Therefore, you should always ensure your super fund remains diversified across many types of investments. By default your industry or retail super funds are diversified for you.
Let’s talk about 3 situations where I have seen property work well in SMSFs:
1. I have seen a number of clients are either experts in property themselves or who have worked with quality buyers advocate who have bought property at the bottom of a market cycle like in Perth or Brisbane a few years ago, and have made great returns. But the key here is that an expert was driving the property selection. For these types of investors, I do have sympathy as they will be adversely impacted by the changes.
2. When self employed business owners who need an office or factory buy their own commercial premises in an SMSF. Your ability to do this remains unchanged, and in some situations remains advantageous because there can be some great benefits when you are both the landlord via your SMSF and the tenant via your business.
3. Where the SMSF balance is large enough that you can pay cash for properties whilst also being diversified. Remember, you are still able to buy residential properties, however, going forward you are just not allowed to use debt to fund them. Quality properties usually require land to generate capital growth, and they are very rarely available for less than $750,000. Therefore, to be adequately diversified in other asset classes, most SMSFs would need a combined balance of more than $2 million to meet this criteria.
In summary
These changes will help protect financially illiterate/naïve people’s retirement savings from making investment mistakes. Having diversification in superannuation investments protect people from making no or low returns which is imperative to living a comfortable retirement.
Whilst it is a shame that property experts will be impacted, overall, as a Financial Planner this is a positive step for consumer outcomes. If you would like help with you super and retirement planning you can:
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