SMSF Borrowing for Residential Property Ends. What It Means for Investors.

Following the recent changes to negative gearing, another significant shift has landed for Australian property investors — this time affecting those looking to purchase residential property through a self-managed super fund (SMSF).

From 10 August 2026, SMSFs can no longer enter into new limited recourse borrowing arrangements (LRBAs) to purchase residential property.

While this closes one pathway for investors looking to use leverage within super, it doesn’t close the door on property investment. SMSFs can still invest in residential property in certain circumstances, while for investors considering structures outside super, new build property may present a particularly compelling opportunity under the changing rules.

What has changed?

It’s important to distinguish what the new rules change from what remains possible for SMSF investors. The change applies specifically to new borrowing arrangements for residential property. Existing residential LRBAs are grandfathered, meaning SMSFs that already hold residential property under an existing borrowing arrangement are not required to sell, refinance or restructure as a result of the new rules.

SMSFs can also continue to purchase residential property outright using the fund’s own cash, while borrowing for eligible business real property remains available under the existing rules.

For investors who had planned to use leverage within super, however, the key question is now where to invest instead.

The opportunity for new builds

Investors moving away from an SMSF borrowing strategy may consider purchasing property in their personal name, through a company or via a family trust, depending on their individual circumstances and professional advice.

This is where the recent changes to negative gearing become particularly relevant. From 1 July 2027, negative gearing for residential investment property purchased after 12 May 2026 will be limited to eligible newly built homes. For eligible investors, this means new builds — including house and land packages — may continue to provide access to negative gearing benefits, subject to individual circumstances.

Alongside negative gearing, newly built homes may also provide significant depreciation benefits. Because the home and many of its fixtures and fittings are brand new, investors may be able to claim higher depreciation deductions compared with an established property, helping support cash flow during the early years of ownership.

For investors reconsidering how and where they purchase property following the SMSF changes, this may make new builds an increasingly attractive option.

SMSFs can still invest with cash

The changes do not prevent SMSFs from owning residential property altogether.

An SMSF with sufficient cash reserves can still purchase residential property outright. It may also be possible for a fund to acquire land and fund construction using its own cash, provided no borrowing is involved and the investment complies with the fund’s investment strategy, the sole purpose test and other SMSF requirements.

For trustees with substantial cash balances, a well-selected new build may therefore still form part of an SMSF property strategy.

The fundamentals remain the same

While tax and superannuation policy can change the way investors structure a property purchase, the fundamentals of a strong property investment remain the same.

Australia continues to experience strong population growth, ongoing housing shortages and sustained demand for quality rental housing. Properties in well-located and connected communities continue to appeal to tenants and offer the potential for long-term performance.

At Elba Living, we help investors secure high-quality house and land packages in some of Melbourne’s most sought-after and fastest-growing estates. We partner with leading land developers across Melbourne’s key growth corridors and build homes with the features renters value most, including contemporary layouts, energy-efficient design, quality finishes and low-maintenance living. The rules around how investors fund property have changed. What makes a property worth owning has not.

For investors reconsidering their approach in light of the 2026 changes, the focus remains on making informed decisions around quality, location and long-term value.

Disclaimer: This article contains general information only and does not constitute financial, taxation, superannuation or legal advice. Legislation and eligibility requirements may change and vary depending on individual circumstances. Investors and SMSF trustees should seek advice from an appropriately qualified financial adviser, registered tax professional, SMSF specialist or legal professional before making any investment decisions.