A regulatory door has closed on residential
From 10 August 2026, self-managed super funds can no longer enter new limited recourse borrowing arrangements (LRBAs) to buy residential property. The change, part of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, leaves existing residential LRBAs grandfathered and refinancing still permitted, but closes the door on new residential borrowing inside an SMSF. Borrowing to acquire commercial or business real property is unaffected.
A second change compounds it. Negative gearing on established residential dwellings bought after 7:30pm on 12 May 2026 is now quarantined: rental losses on those properties can only be offset against residential rental income or future capital gains, not salary or other income, once the rule takes effect from 1 July 2027. New builds, build-to-rent developments and property held in widely-held trusts or super funds are exempt. Commercial property and other asset classes keep their existing tax treatment.
Two of the main levers "mum and dad" residential investors have relied on, gearing inside an SMSF and offsetting losses against other income, have both been narrowed at the same time commercial property's treatment stayed put.
The numbers already show a shift
Australian Taxation Office statistics for the December 2025 quarter show SMSFs held $1.06 trillion in total assets across 663,867 funds, with non-residential (commercial) property holdings of $116.7 billion nearly double residential property's $60.9 billion.
A survey of 1,000 Australians, including 400 SMSF trustees or people planning to establish a fund, found 26% intend to invest in commercial property inside their SMSF using an LRBA, compared with 27% planning to buy residential property outside super entirely and 12% planning an unleveraged residential purchase inside the fund.
Commercial yields are also doing the persuading
Cotality's Home Value Index put the national gross residential rental yield at 3.8% as at 31 August 2026 (combined capitals 3.6%, combined regional areas 4.3%), even as national dwelling values fell 0.9% over the month, a fifth consecutive monthly decline that left values 3.6% below March's peak.
Commercial yields are running well ahead. Colliers puts Sydney commercial yields in a 5.25%–7.50% range across sectors, with industrial the tightest at 5.25%–6.50% on the back of strong occupier demand and investor competition; 2025 industrial investment volumes of $6.7 billion ran well above the long-term average. For an income-focused investor, that is a yield gap of two to four percentage points, before weaker residential capital growth is even factored in.
How individual investors without an SMSF still get exposure
Buying a whole commercial asset outright is out of reach for most individual investors, SMSF or not. Unlisted property funds and syndicates, governed by ASIC's Regulatory Guide 46 disclosure rules, let retail investors pool capital into commercial assets without buying a building outright. Listed A-REITs offer a more liquid alternative and can be bought through an ordinary brokerage account, with no SMSF or syndicate structure required.
This is general information, not investment advice. Commercial property and SMSF borrowing carry their own risks, including illiquidity, concentration and gearing risk, and eligibility rules differ by structure.