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SMSF borrowing ban to hit ordinary Australians, as experts warn of unintended consequences
The decision to ban future borrowing for residential property inside SMSFs is facing mounting industry backlash, with experts warning that the move will disproportionately impact ordinary investors while doing little to address housing affordability.
Under the proposed reforms agreed between Labor and the Greens, limited recourse borrowing arrangements (LRBAs) will be banned for residential property, effectively removing the primary mechanism SMSF investors use to leverage into real estate.
Industry leaders say the change risks shutting out everyday investors who have relied on self-managed super fund (SMSF) to look after themselves in retirement.
Arjun Paliwal, CEO of InvestorKit, said while the legislation is not yet final, the implications are already significant.
“If the proposal proceeds as reported, it would effectively bring an end to borrowing for property purchases within SMSFs,” Paliwal said.
He said LRBAs are currently the only structure allowing SMSFs to borrow for property, meaning the change would fundamentally alter retirement investment strategies for many Australians.
Paliwal said the impact would fall heavily on everyday investors rather than large institutional players.
“The people most affected by this proposal are everyday Australians who have worked hard, built up their superannuation balances and are looking for ways to take greater control of their retirement outcomes.”
“At a time when housing affordability, cost-of-living pressures and retirement adequacy are already major concerns, limiting the tools available to Australians to grow their retirement savings could have unintended long-term consequences.”
Paliwal added that the policy could reduce the ability of Australians to build sufficient retirement wealth, increasing future reliance on government support.
Natalia Clack, founder of Easy Super, said SMSFs would still be able to invest in property, but borrowing restrictions would significantly narrow options.
She said alternatives such as outright purchases, ungeared unit trusts, or commercial property strategies may still remain available.
“For many Australians, however, accumulating sufficient funds to purchase residential property outright inside an SMSF may not be a realistic option,” Clack said.
Property industry leaders also raised concerns about unintended consequences for diversification and retirement outcomes.
PIPA chair Cate Bakos said SMSF investors are often families with strong balances who turn to superannuation property strategies when traditional borrowing becomes difficult.
“These investors will miss out on this opportunity to build future wealth within their respective superannuation funds,” Bakos said.
“Ultimately, superannuation was always meant to enable Australians to retire with a better financial outlook than that of the old age pension. Our government’s willingness to trim the wings of those who are working hard to safely grow their wealth within an SMSF vehicle is disappointing.”
She warned the change could reduce diversification options within SMSFs, arguing that limited recourse borrowing has historically been tightly regulated and represents only a small share of the housing market.
“Given that most self-managed superannuation balances are insufficient to purchase property outright, meaning that a limited borrowing recourse arrangement is often the only option for a fund to invest in direct property.”
REBAA vice president Zoran Solano said investor confidence had already shifted following recent policy announcements, with sentiment moving quickly across the market.
“SMSF property investors represent a very small proportion of Australia’s housing market, so, it’s difficult to argue they are driving the nation’s housing affordability challenges,” Solano said.
He argued housing supply, rather than restricting buyers, should remain the central policy focus.
“Housing affordability will ultimately be improved by increasing housing supply, not simply reducing the number of buyers.”
Solano said policymakers should allow time for the market to absorb existing reforms before introducing further restrictions.
“If SMSF residential property represents such a small percentage of Australia’s housing market, the real question isn’t whether SMSFs should be banned from borrowing,” he said.
“The real question is why we’re focusing on a fraction of the market while Australia’s housing supply challenges remain unresolved.”
The federal government maintains that the reforms are aimed at reducing risk in retirement savings and improving housing affordability.
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