SMSF commercial property is about to get a lot more attention. From 10 August, self-managed super funds cannot take on new limited recourse loans to buy homes or units, but the same borrowing for commercial premises is still allowed. The rule closes one door and leaves the next one open.
That gap is the story. A policy aimed at one asset class tends to move money rather than delete it, and the useful question is where it lands and who is standing there when it does.
What the ban actually removes
The change is narrower than the headlines suggest. Loans arranged before 10 August stay valid and can be refinanced. Funds can still buy residential property outright with no debt. What disappears is new leverage on homes and units inside super.
That matters because leverage was the whole appeal for most smaller funds. Buying a property outright takes a large balance, and few funds have one. Pooling money in a unit trust is possible, but it adds cost and complexity. For a mid-sized fund, the practical result is that residential is now a cash-only game.
Why commercial looks like the obvious detour
For investors who still want a geared property inside super, commercial is the path of least resistance. One specialist in the space says about 40 per cent of the roughly 30 commercial purchases his firm handles each month for clients use super funds. He also points out that commercial assets typically deliver about triple the income of residential at the same 80 per cent loan-to-value ratio.
The tax treatment is a second pull. Net rental income and capital gains are taxed at no more than 15 per cent in the accumulation phase. The rate drops to 10 per cent after a year of ownership, and a sale during the pension phase attracts no tax. None of that changes for commercial buyers.
A broker adds a third angle. A super fund is assessed as a separate borrower, so it can offer borrowing capacity that a personal balance sheet may not. Loans can also run 30 years, compared with reviews every two to five years on some alternatives.
Key numbers
- 10 August: date new SMSF loans for homes and units stop
- About 40%: share of one firm’s monthly commercial purchases that use super
- About 3x: commercial income versus residential at the same 80% LVR
- Up to 2 percentage points: extra cost on non-bank loans
The catch: demand that moves still has to be absorbed
Here is where the clean story gets messy. Commercial property is a different asset, and the thing that makes it attractive on paper can be the thing that bites.
Higher yield usually exists for a reason. Commercial leases can be longer, but a single vacancy can wipe out a year of income, and re-letting a vacant shop or warehouse can take far longer than finding a residential tenant. A residential investor loses a few weeks. A commercial landlord can lose the cash flow that services the loan.
There is also a price effect to consider. If a batch of super-fund buyers redirects into commercial at the same time, the extra bids can compress the very yields that made the sector appealing. We do not have data on how large that shift will be, so it is a risk to watch rather than a forecast. Buyers who arrive late may pay up for yield that has already narrowed.
Concentration is the quieter risk
A self-managed fund is usually small, and a single geared commercial asset can end up as most of its balance sheet. That is a concentration problem on top of a vacancy problem.
The costs also add up. Set-up is more complex and more expensive than a standard loan. Non-bank lenders, which fill much of this market, can price up to two percentage points above the major banks. A fund that fails to comply faces a 45 per cent tax rate, which turns a structural slip into a costly one.
So the higher headline yield has to be weighed against higher borrowing costs, vacancy exposure and compliance risk. The comparison is not residential against commercial on yield alone.
Does this ease investor demand, or just redirect it?
The honest answer is probably a bit of both, and which dominates is not yet visible.
There is a plausible case that fewer geared super-fund purchases of homes eases a slice of competition for residential stock. Some of that demand will not simply vanish, though. Funds with large balances can still buy outright, and investors can still buy residential through personal or other structures. The ban removes one route, not the motive.
On the commercial side, the extra attention will test whether the sector can absorb it without a yield squeeze. Our view is that the outcome depends on how many funds actually make the switch and how much suitable stock is available. For more on how super and property interact, see our guide to super, SMSF and property funds, and for the wider trade-off between the two, this look at tax changes forcing a property versus super choice.
What a reader should do with this
If you hold an existing geared residential loan inside super, the ban does not force you out. Refinancing remains available, so the immediate pressure is lower than the headline implies.
If you are weighing a switch to commercial, pressure-test it before you commit. Ask what happens to the loan repayments if the tenant leaves for six months. Ask what share of the fund the asset will represent. Ask what the non-bank margin does to the net yield. If those answers still work, the structure can make sense. If they only work in the best case, the ban is a poor reason to rush.
The practical next step is to speak to a licensed adviser and an SMSF specialist before the structure drives the investment decision. Tax outcomes depend on your own circumstances, and a trustee carries the compliance risk personally.
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General info, not financial advice.
