The Australian government has announced a ban on self-managed superannuation funds (SMSFs) borrowing to invest in residential property, a move that has drawn mixed reactions from industry representatives, economists, and policymakers. The rule change, revealed by Prime Minister Anthony Albanese and Treasurer Jim Chalmers on Tuesday, forms part of a $50 million initiative linked to the broader federal budget package and stems from a deal with the Greens.
Under the new regulation, SMSFs will be prohibited from using limited recourse borrowing arrangements (LRBAs) to purchase residential property. Supporters of the ban argue it addresses concerns over the role of SMSFs in driving up housing prices and helps protect homebuyers competing with leveraged investors. Jeremy Cooper, a noted superannuation consultant, described the move as a "good lever to pull," stating that allowing tax-advantaged SMSFs to buy residential property inflates prices and crowds out first-home buyers. Cooper further argued that residential property is not an ideal retirement asset due to ongoing maintenance costs and illiquidity.
Despite these points, many in the SMSF sector and property investment community have criticized the ban as an unnecessary restriction that reduces investment flexibility and may harm retirement savings strategies. The SMSF Association’s chief executive, Peter Burgess, expressed disappointment, emphasizing that previous reviews found no systemic risks linked to SMSF borrowing and that the government failed to consult his organization on the decision. He also highlighted concerns that addressing property spruiking and high-pressure sales tactics would be more effective than changing borrowing rules.
Industry voices warn the ban will disproportionately affect ordinary Australians relying on SMSFs to diversify their retirement portfolios, particularly those with balances insufficient to buy property outright without leverage. Cate Bakos, chair of the Property Investment Professionals of Australia, said the changes would “crush diversification” opportunities within SMSFs, while financial adviser James Wrigley predicted the ban might discourage new SMSF formations and impact older Australians or those recovering from divorce in securing a home.
Economists are divided. UNSW professor Richard Holden criticized the government for further altering SMSF regulations amid already extensive tax reforms, questioning the rationale for restricting leveraged investments amid common practices like margin lending. Conversely, independent economist Saul Eslake welcomed the ban, calling prior incentives to borrow within superannuation “one of the dopiest tax policy decisions in the last 20 years.” AMP chief economist Shane Oliver cautioned the changes contribute to an impression of the government primarily raising revenue through its tax packages rather than enacting genuine reform.
The residential property market could also feel the effects, with some analysts warning the ban adds downward pressure amid already softening market conditions. Maple Property Group founder Beau Arfi described the policy as “an attack on property investors," noting that it comes just as the SMSF borrowing market had begun to recover, including new lending products introduced recently by financial institutions.
Despite concerns raised, government officials, including Women’s Minister Katy Gallagher, defended the measure, dismissing claims that the ban would harshly impact vulnerable groups such as divorced women using SMSFs to purchase a home for retirement. The ban specifically targets residential property borrowing and does not extend to business-related property holdings within SMSFs, such as commercial premises owned by a business operator.
As Parliament prepares to pass the contentious amendments, the debate highlights ongoing tensions over the appropriate role of SMSFs in housing markets and retirement planning, reflecting broader challenges in balancing consumer protection, fiscal policy, and investment freedom.