It’s been just over a week since the government announced the unexpected decision to ban new self-managed super fund loans for residential property, and experts are calling for it to be somewhat walked back.
The forthcoming ban is a blanket one, encompassing both new and existing homes – this is at odds with the negative gearing changes announced in May’s federal budget where new homes are exempt.
Industry figures hope the impending rule change could be partially walked back, similar to how the minimum tax rates placed on trusts were later amended to exclude testamentary trusts. This captured inheritances, left via a will, and critics called it a ‘death tax’.
Like the so-called ‘death tax’, experts are saying the residential loan ban for SMSFs could have far-reaching and unintended consequences, chiefly for the pipeline of new homes.
Ray White chief economist Nerida Conisbee said the SMSF loan ban would hamper the government’s densification efforts and the types of homes it is trying to build under the National Housing Accord.
“SMSF buyers are not spread evenly across the market. They are more likely to appear in specific types of stock: new apartments, townhouses, house-and-land packages and investor-oriented dwellings at lower price points,” Ms Conisbee said.
“These are also the projects where pre-sales can be hardest to achieve when investor demand is weak.”
Treasury estimates the SMSF loan ban will save the budget bottom line $50 million, but experts are wondering about the true cost of the hit to the pipeline of new homes. Picture: Getty
Typically, for a new development to draw down on finance and start construction, around 60% of units in a complex need to be pre-committed, with SMSF buyers commonly in the pool of those buying off the plan.
This means if one off-the-plan unit backed by an SMSF falls away, it could have a domino effect on the viability of the whole project.
“If one buyer group is removed from that early stage, the impact is not limited to the individual purchase,” Ms Conisbee said.
“It can affect whether the entire project starts, how many dwellings are delivered and how quickly new rental supply reaches the market.”
The government says the rule change is small in scope, with fewer than 4,000 SMSF loans written per year.
Ray White chief economist Nerida Conisbee says the SMSF loan ban could have far-reaching and unintended side effects on the pipeline of new builds. Picture: Supplied
Developers estimate around 30% of off-the-plan purchases are backed by SMSFs. If the conservative 4,000 figure is correct then upwards of 13,000 units are at risk, though it’s unclear on the split between loans for new versus existing dwellings, or the proportion of off-the-plan purchasers that are leveraged.
Many in the sector say 4,000 is likely a significant undershot of the true figure.
Several SMSF loan providers opened their ledgers up to the Financial Review last week, revealing a much higher number written over the past 12 months.
REA Group economist Luc Redman also said the ban could have a surprise effect where some SMSFs with enough cash look for established properties, rather than take a punt on higher-risk off-the-plan builds as they are using more of their own capital.
“These changes won’t directly impact SMSFs’ desire to gain exposure to residential property as an asset class, but will most likely mean that exposure is skewed towards established dwellings rather than higher-density developments, exactly where supply is required.”
Industry response
Luke Hayes, Colliers’ director of residential project marketing, said market jitters for developers are already evident.
“For developers… it can hurt the delivery of projects. There’s chat like ‘Wow I wasn’t expecting that’… there’ll be a few disgruntled stakeholders for sure,” he told realcommercial.com.au last week.
Oscar Stanley, Urban Development Institute of Australia (UDIA) president, said the rule change is at odds with the government’s home building goals.
“A more sensible approach would be to actually encourage SMSF investment in new housing supply,” Mr Stanley said.
“That would align retirement savings with the national goal of increasing housing supply, support construction activity and help deliver more homes where they are most needed.”
This proposal was backed by WLTH, a non-bank lender and prominent provider of SMSF loans, in a research paper released earlier this week.
It also had the backing of a roundtable on Wednesday, consisting of industry figures and opposition spokesperson on housing Andrew Bragg MP.
More homes require more investment. Treasury estimates the proposed housing tax changes will reduce housing supply by 35,000 homes over the next decade. This week @HIA_au joined @ajamesbragg, @UDIANational & @PropertyCouncil to advocate for settings that support housing delivery pic.twitter.com/DEgPBw5m9r
— Housing Industry Association (HIA) (@HIA_au) July 2, 2026
A lesson in history?
ABS figures for May show another slump in dwelling approvals, as the government approaches two years into its five-year timeline to build 1.2 million homes.
Under this target, 240,000 homes need to be built each year; Master Builders Australia (MBA) says at an annualised rate, the government is already 91,000 dwellings behind the eight-ball.
MBA chief economist Shane Garrett said the mid-2010s were the halcyon days for construction.
“Then, we had a favourable mix of settings involving low interest rates, solid productivity, economic stability and an openness to foreign investment,” he said.
Brodie Haupt, CEO and co-founder of WLTH, said the favourable conditions ended when APRA adjusted rules that limited investment loans to a certain percentage of a bank’s loan book.
Under the rules, banks were required to keep investment loan books growing at no greater than 10% per year, and the proportion of interest-only loans was capped at 30% of all new residential home loans. The rules were then unwound at the end of 2018.
“Fewer projects proceed. Fewer rentals enter the market. We have seen this before – the 2017 APRA investor restrictions cut apartment approvals by 32%,” Mr Haupt wrote on LinkedIn.
“That supply hole is a primary driver of the rental crisis right now. The government is repeating a known experiment with known results while trying to build 1.2 million new homes.”
While it is true that private sector unit approvals declined in 2017-18 versus the preceding two years, REA Group analysis of ABS figures shows it’s more like a 25% reduction for apartments, and 16% for units (including townhouses).
Mr Redman said this was more of a correlation rather than a causation for dwelling approvals to decline.
REA Group economist Luc Redman says the SMSF loan ban could cause trustees with enough cash to seek established properties, rather than front all their capital on riskier off-the-plan builds. Picture: realestate.com.au
The pull to commercial
In the immediate aftermath of last week’s announcement, experts opined that everyday investors could start to look at smaller commercial properties as a substitute for residential.
For now, commercial property SMSF loans are exempt from the ban, though some mixed-use properties could be caught up in the ban – for example, hobby farms, or a doctor’s practice with residential quarters onsite.
Ray White Commercial Western Sydney has noted a strong uptick in interest in two of its developments over the past week – a series of premium-grade warehouse units in Strathfield South, and another in Gladesville.
It found 10% of total project stock had exchanged hands over the past week alone. The Strathfield project reached its 50% presale milestone while only being 25% complete.
An artist’s impression of a warehouse development in Strathfield South, NSW, which has seen a bump in sales and interest since the SMSF loan ban announcement. Picture: realcommercial.com.au
“For many private investors, smaller industrial strata assets offer a clear entry point into commercial property, with stronger yield profiles than many residential investments,” sales executive Harry Veall said.
“They are tangible, easy to understand, and can appeal to both investors and owner-occupiers.”
However, experts have warned investors that commercial is not a cut-copy substitution for residential, and that the learning curve can be steep.
While yields can be higher, capital growth could be mixed, and liquidity lower. Vacancy rates tend to be higher than in residential and finding tenants can take longer.