Key Insights
- New borrowing through an SMSF for residential property is set to be banned under the Federal Government's announced reforms, while qualifying business property is expected to remain eligible.
- The reforms could encourage some investors to look more closely at commercial property.
- Now is an ideal time for SMSF trustees and investors to review their property strategy and seek professional advice.
- Commercial property owners should understand how changing investment trends may influence future buyer demand.
- Policy changes won't reshape the Pilbara market overnight, but they can influence where investment capital flows over time.
The Federal Government's announced reforms to Self-Managed Super Funds (SMSFs) have generated significant discussion, particularly around residential property investing.
But there's another side to the story.
Under the reforms, new borrowing through an SMSF for residential property is set to be banned, while borrowing for qualifying business property is expected to remain available. For commercial property owners and investors, particularly across the Pilbara, that could influence where some investment capital is directed in the years ahead.
What's changing?
Following the Government's agreement with the Greens, legislation has been introduced to ban new Limited Recourse Borrowing Arrangements (LRBAs) for residential property held through SMSFs.
An LRBA is the legal structure that allows an SMSF to borrow money to purchase property. If the legislation proceeds as announced, new borrowing for residential property through an SMSF will no longer be permitted.
Importantly, the reforms are not expected to apply retrospectively. Existing borrowing arrangements are expected to remain in place, and transitional arrangements are intended to allow eligible transactions already underway to continue under the current rules.
It's not as simple as residential versus commercial
The reforms don't simply distinguish between residential and commercial property. Instead, they focus on how the property is used.
Property that is genuinely used in a business may still qualify for borrowing through an SMSF under what's known as the business real property rules.
In practice, that often includes warehouses, workshops, industrial facilities, office buildings and many retail premises. However, not every commercial-looking property automatically qualifies. Mixed-use properties, vacant commercial land and assets with a residential component may require specialist advice.
For many business owners, this remains one of the most practical uses of an SMSF, allowing qualifying business premises to be owned by the fund and leased back to the operating business on commercial terms.
What could this mean for the Pilbara?
The reforms don't remove SMSFs from property investing altogether. Residential property can still be purchased outright if a fund has sufficient capital. What changes is the ability to borrow to acquire residential property.
As a result, some investors may reconsider where they invest, whether that's purchasing residential property outright, exploring alternative investment structures or looking more closely at commercial property.
For the Pilbara, that could reinforce demand for quality commercial assets that support genuine business activity, including:
- warehouses and workshops
- industrial yards
- office buildings
- leased commercial investments
- business premises occupied by owner-operators.
That doesn't mean commercial markets will suddenly experience a surge in demand. However, it could gradually broaden the pool of investors considering commercial property as part of their long-term strategy.
While the reforms have generated considerable attention, it's worth keeping them in perspective. According to ABC reporting, SMSF borrowing accounts for around 1% of Australia's outstanding housing mortgages and less than 0.5% of new residential lending. Because SMSF borrowing represents only a small share of Australia's housing finance market, many commentators expect the overall impact on housing affordability to be relatively modest. However, the reforms may have a much greater effect on individual investors, developers and parts of the residential property sector.
What does this mean for residential property?
For residential investors, the impact is likely to vary depending on how property is currently held and future investment plans.
If an SMSF already owns residential property using an existing Limited Recourse Borrowing Arrangement (LRBA), those arrangements are expected to continue under the proposed grandfathering provisions. Likewise, SMSFs with sufficient cash can still purchase residential property outright without borrowing.
The biggest change affects investors who are planning to use an SMSF loan to buy residential property in the future. They may now need to consider alternative funding structures, purchase outside of super, or review whether other investment options better suit their long-term goals.
Some commentators, particularly within the development industry, have warned the reforms could reduce demand for new apartments, where SMSF investors have historically been active buyers. Others argue the overall effect on the broader housing market is likely to be limited, given SMSF borrowing represents only a small proportion of residential lending.
For residential property owners and buyers across the Pilbara, the reforms are unlikely to create immediate changes in local property values or demand. However, anyone considering purchasing residential property through an SMSF should seek professional financial, taxation, and legal advice before making decisions.
Now is a good time to review your strategy
With the reforms progressing, now is a sensible time for SMSF trustees and investors to review their plans with qualified financial, taxation and legal advisers.
If you've been considering purchasing residential property through your SMSF using borrowed funds, it's important to understand how the proposed changes and transitional arrangements may affect your strategy.
For commercial property owners and investors, it's also a good opportunity to review your SMSF investment strategy, property valuations, liquidity and broader compliance obligations.
Separately, business owners should also be aware that Payday Super commenced from 1 July 2026, requiring employer super contributions to be paid alongside wages rather than quarterly. While unrelated to the SMSF borrowing reforms, it is another significant superannuation change affecting many businesses.
Other changes to be aware of
The residential borrowing reforms aren't the only changes affecting SMSFs.
From 1 July 2026, Division 296 introduced an additional tax on earnings attributable to superannuation balances above $3 million. While separate from the borrowing reforms, it may influence how some investors choose to structure assets within super over time.
Together, these changes reflect a broader shift in the Government's approach to superannuation policy.
Not everyone agrees
Industry opinion remains divided.
Supporters argue the reforms will reduce additional competition in the residential housing market and better align superannuation with its intended purpose of providing for retirement.
Critics, including many SMSF specialists, property professionals and developers, argue the reforms target a relatively small segment of the housing market and are unlikely to meaningfully improve affordability. Some have suggested that broader housing supply reforms would have a greater impact than restricting SMSF borrowing.
As with many policy changes, the full impact won't become clear until the reforms have had time to flow through the market.
Looking ahead
While these reforms are unlikely to reshape the Pilbara property market overnight, they may influence how investors structure future property purchases.
For residential investors, borrowing through an SMSF is set to become much more restrictive. For commercial property, qualifying business premises are expected to remain an option, meaning some investors may increasingly look towards commercial assets as part of their long-term strategy.
At Realmark Commercial Pilbara, we're watching these changes closely. While we don't provide financial, taxation or legal advice, we help buyers, sellers and investors understand how broader policy changes can influence property markets across the Pilbara.
Disclaimer: This article is general information only and does not constitute financial, taxation or legal advice. SMSF structures and property transactions are highly regulated and should always be considered with advice from appropriately qualified professionals.