Self-managed super fund (SMSF) investors are increasingly turning to commercial property after the Federal Government moved to restrict SMSF lending for residential assets, prompting what one adviser describes as one of the most significant strategy shifts the sector has seen in years.
The shift follows the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June and banned SMSFs from entering new Limited Recourse Borrowing Arrangements (LRBAs) for residential property from 10 August, with existing arrangements grandfathered.
Access Wealth managing director and founder Dory Senior (pictured), who works across new-build residential and commercial property, said the changes created intense short-term pressure as SMSF clients raced to lock in residential contracts ahead of the cut-off. But he said the disruption has also brought forward a longer-term conversation already underway with many clients.
"The lending change hit hard at first, but it also accelerated a conversation we were already having with clients," Senior said.
The broader trend is reflected in survey data in a Money.com.au survey, which found 26% of SMSF investors now plan to shift toward commercial property within their fund, where LRBA borrowing remains permitted, while just 12% plan to buy residential property outright using existing cash.
According to Senior, commercial property has long held appeal for SMSF investors due to stronger typical rental yields and the capacity to pay down debt more quickly, with the asset eventually generating retirement income.
Senior pointed to three drivers behind the pivot: the loss of residential borrowing capacity inside SMSFs, generally lower entry price points in commercial property, and the ability to build in rental guarantees for greater income certainty.
Rental guarantees, often viewed cautiously in residential property circles, are treated differently in the commercial space, Senior said.
"In commercial, a rental guarantee is sensible," he said. "It gives investors certainty during the initial lease-up period, which is where vacancy risk is highest."
The scale of the change remains contested: AFIA members alone wrote more than 16,000 new residential SMSF loans in FY26, against the government's estimate of around 4,000 arrangements a year — a gap that has prompted peak property and finance bodies to call on Canberra to pause the ban, which remains in force pending any government response.
Regardless of how the policy debate unfolds, Senior said investors moving into commercial property now need to model the asset class carefully, with vacancy remaining the biggest variable and requiring more rigorous financial modelling than residential property. He said this means building in buffers for interest rate rises, council and water rates, insurance, and maintenance costs.
"You can't rely on best-case scenarios, which means you need buffers, conservative assumptions, and a clear understanding of cash flow," he said.
Senior said the underlying test for investors is whether long-term rental income and growth potential justify the costs and risks of holding a commercial asset over a decade or more, and urged SMSF investors to seek advice from a qualified financial adviser before acting on any changes to their SMSF strategy.
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