On Tuesday the government made the somewhat surprise announcement it would seek to ban lending for residential properties held within self-managed super funds (SMSFs).
Since the policy announcement, criticism from both the lending and property sectors has been strong.
James Linacre, chief executive of Ray White Commercial, said it narrows the wealth creation window for ‘mum and dad’ investors.
“The problem is that Australia’s housing market does not suffer from an investor problem. It suffers from a supply problem,” Mr Linacre said.
“Australia’s rental housing stock is overwhelmingly provided by private investors. Every policy that reduces the incentive for private capital to invest in residential property ultimately reduces the incentive to provide rental housing.”
James Linacre, CEO of Ray White Commercial, says recent property rule tweaks narrow the wealth creation window. Picture: Supplied
Brodie Haupt, CEO and co-founder of non-bank lender WLTH, said the government is failing to see the bigger picture with this ban.
“Every SMSF residential property is a rental property. Members cannot live in what they buy – it is prohibited. Every SMSF investor in residential property is directly supplying the rental market millions of Australians depend on,” he wrote on LinkedIn.
WLTH is a prominent provider of SMSF loans – a sector that major banks largely exited just over a decade ago.
In announcing the new policy, treasurer Jim Chalmers said this is a small-target response, with less than 1% of lending volumes tied up in SMSFs.
He said it further aids in the government’s mission on making it easier for first-home buyers to access the property market, without competing against leveraged and tax-advantaged investors.
Brodie Haupt, CEO and co-founder of non-bank lender WLTH. Picture: Supplied
Holding a residential property within self-managed super is a popular asset option for those looking to take control of their own retirement goals.
Tax office data to March 2026 shows there was more than $62 billion in residential property held within SMSFs, along with more than $80 billion in limited-recourse borrowing arrangements (LRBAs).
SMSF home loans are limited in recourse so that in the event of default, the mortgagee cannot come after other assets in the fund, only the security the loan is held against.
The popularity of LRBAs and residential property in SMSFs has exploded in recent years, and has been a controversial sub-sector of property investment.
Both sides of politics have hinted at banning SMSF loans over the years; in 2014 the Coalition Government commissioned the Murray Financial System Inquiry that sought to tighten rules in the sector.
Owing to their higher risk, many mainstream banks and lenders pulled out of the space around that time; today it’s primarily occupied by non-bank lenders such as WLTH, La Trobe, and Firstmac.
Treasurer Jim Chalmers has introduced one of the most significant property taxation packages in decades. Picture: Martin Ollman
Currently, SMSFs in the accumulation phase face only 10% capital gains tax on assets held for 12 months or more, and were shielded from the latest changes to taxation and negative gearing announced in the 2026 budget.
For many election cycles and budget announcements, those in the SMSF lending space half-expected a ban on LRBAs. Tuesday’s move was neither in an election cycle nor a budget item.
That said, Treasury expects the budget bottom line will improve by $50 million with the ban in place.
For investors, it’s potentially another blow to confidence. Auction clearance rates, often a leading indicator of property market confidence, have taken a dive over the last few weeks, adding to the typical winter lull.
Last weekend, the two biggest auction markets in Melbourne and Sydney posted clearance rates of 46% and 38% respectively – some of the weakest results since Covid, potentially marking the start of a new downturn – according to PropTrack data.
A market of 60-70% properties selling successfully under the hammer is the sign of a robust, seller-oriented property market.
Mr Linacre said item by item, this change, along with others announced in the federal budget, seem modest – but collectively they “represent a significant shift”.
Melbourne’s auction clearance rates have been trending downwards, as low as the 40 to 50 per cent range, since spring 2025. Picture: Jason Edwards.
Commercial property stays winning
Much was written about commercial property being a beneficiary of investor dollars in the wake of the 2026 federal budget.
Commercial property retains its negative gearing benefits; yields are also higher, yet compressing across many sectors – an indicator of rising values.
The forthcoming LRBA ban, too, affects only residential lending, not commercial.
Commercial property is also a more popular asset class held within SMSFs, valued at more than $120 billion – nearly double that of residential.
Commercial property investment is set to look more attractive, taxation wise, compared to residential. Picture: Colliers
SMSF trustees and members who are business owners can benefit from owning a commercial space, then leasing it out to their business, paying market-rate rent back into the fund.
“An investor can no longer use leverage through their SMSF to acquire a residential investment property, but they can still use leverage to acquire a warehouse, an industrial unit, a retail investment, a medical property or even the premises from which they operate their own business,” Mr Linacre said.
Anne Flaherty, PropTrack senior economist, said commercial now looks more attractive relative to residential investment.
“This additional change banning buyers from investing in residential property through SMSFs could direct more capital to the sector,” she said.
PropTrack senior economist Anne Flaherty says commercial property could emerge as a more attractive option.
Luke Hayes, Colliers’ director of residential project marketing, said that on the surface, this change makes commercial property look more attractive.
“It did feel that over the years, more and more people were looking more at SMSFs and property within SMSFs,” Mr Hayes said told realcommercial.com.au.
“It will hurt the residential sector – there’s a lot of average mums and dads looking to grow their wealth, and a lot looking to get into the property market – now that’s not viable. It’s a question of ‘What else can I do’?”
Colliers’ Luke Hayes. Picture: Supplied
However, he said the learning curve for commercial property can be steep.
“People who have looked at commercial in the past were savvier investors, looking at a more diverse portfolio – not so much the mums and dads who were looking for a safe zone.
“The types of loans needed, the deposits, the asset classes and tenants – these are all a bit of an educational piece.”
Ms Flaherty also said there are additional considerations investors will need to make.
“Transitioning from being a residential to a commercial property investor is not straightforward due to the complexity of the sector and the high learning curve that can occur when investing in the sector. There are also other risks involved in commercial that may dissuade some buyers.”
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