Self-managed super funds (SMSFs) have long used limited recourse borrowing arrangements (LRBAs) to invest in property — borrowing to acquire a single asset, with the lender’s recourse limited to that asset alone if things go wrong. It’s a strategy that’s existed since 2007 and has been used by trustees looking to build retirement wealth through direct property ownership.

That strategy has now changed, at least where residential property is concerned. Following an agreement between the Federal Labor (ALP) Government and the Australian Greens, new LRBAs for residential property are no longer permitted inside SMSFs. The legislation has passed both Houses of Parliament and received Royal Assent, with the ban commencing 45 days later.

If you’re an SMSF trustee, or you’ve been weighing up an SMSF property strategy, here’s what has changed, the key dates, and what to consider moving forward.

What has changed

The change amends the Superannuation Industry (Supervision) Act 1993 to prevent SMSFs from entering into new borrowing arrangements to acquire residential property. Business real property — commercial premises that can be owner-occupied by a related business — is unaffected and remains available under the existing LRBA rules.

A 45-day transition period applies from the date the legislation received Royal Assent, giving trustees who are already part-way through a purchase a window to finalise arrangements under the current rules.

Who is, and is not, affected by the changes

  • Existing residential LRBAs are unaffected and continue as normal.
  • Refinancing an existing LRBA remains permitted.
  • Contracts signed before the ban takes effect are protected, even if settlement occurs afterwards.
  • Commercial premises (including business real property that can be owner-occupied) LRBAs are unaffected.
  • New residential property LRBAs are no longer available once the ban commences.

How big a change is this, in practice?

It’s worth putting the change in context. LRBAs have always been a relatively niche strategy — they make up a small share of both total housing finance and total SMSF assets, and they’ve operated within an already well-regulated super and borrowing framework since being introduced.

For trustees who had been planning to use this strategy, closing off new residential LRBAs removes a pathway that previously supported retirement wealth building through direct property. Given the relatively small scale of LRBA lending overall, the change is expected to have a modest effect on the broader housing market.

Housing supply remains the bigger factor

Limiting one group’s borrowing options can look, on the surface, like it should ease pressure for first home buyers by reducing competition. Most housing market commentary, however, points to the balance between population growth and new housing supply as the more significant driver of affordability pressure over time.

Population growth has continued to run ahead of new housing completions in recent years. That’s a separate issue to how any one type of buyer finances a purchase, and it’s worth keeping both factors in view when thinking about where the market may head next.

What it could mean for the rental market

Residential property held inside an SMSF must be leased on arm’s length terms — it can’t be lived in or used as a holiday home by fund members or related parties. That’s a useful detail here, because it means SMSF purchases have historically contributed to rental stock, not owner-occupied stock.

If fewer SMSFs purchase residential property going forward, that could mean fewer new rental properties entering the market over time, while population growth and household formation continue largely unchanged. Rental markets are often where the effects of supply and demand shifts show up first, ahead of any change in property prices.

What should you do now

If you already hold a residential LRBA, no action is required — your arrangement continues under the existing rules.

If you’re mid-process on an SMSF residential property purchase, it’s worth understanding exactly where your transaction sits against the transition timeframes, and whether your contract will fall inside or outside the protected window.

If you’d been considering an SMSF property strategy for the first time, it’s a good time to look at what alternatives exist, both inside and outside super. Your borrowing capacity, deposit position, cash flow and time frame remain the biggest drivers of what’s realistically achievable, regardless of how the rules around any one strategy shift.

Before making any changes to your lending, structures or superannuation, seek personalised advice from a licensed financial adviser, tax professional and, where relevant, an SMSF specialist. If you’d like to talk through how these changes could affect your borrowing options — inside or outside super — we’re here to help.

Get in touch

With over 30 years of finance experience and specific experience structuring SMSF lending, the Aspire Mortgage & Finance team can help you understand how the LRBA changes affect your position and what options remain available. 

Contact us on 07 3356 6666, email [email protected], or visit aspire.finance to arrange a time to talk.