New data throws another curveball in the government's move to reform self-managed super funds (SMSF), reigniting questions over the future of SMSF lending and its role in Australia’s property market.
In June, the Labor party said it will prohibit SMSFs from using limited recourse borrowing arrangements (LRBAs) to purchase residential property. The legislation, which received Royal Assent on 26 June, provides a 45-day transition period before the ban on new residential SMSF LRBAs takes effect on 10 August. Existing arrangements are grandfathered.
The move was part of Labor's deal with the Greens to secure passage of the 2026 to 2027 federal budget through the Senate.
At the time, Treasurer Jim Chalmers told reporters: "This is a very small part of the housing market. SMSFs, for example, are less than 1% of total residential property borrowing, and less than half a per cent of new residential borrowing each year."
However, new data from the Australian Finance Industry Association (AFIA) suggests the government may have underestimated the scale of SMSF borrowing for property. The figures indicate the market could be significantly larger than Treasury’s estimates, raising questions about whether the impact of policy changes on SMSF lending has been fully considered.
The government estimates put the number of new SMSF borrowing arrangements at around 4,000 a year, based on 2024 Australian Taxation Office (ATO) data.
But the AFIA says the market is much larger. According to the industry group, specialist non-bank lender members wrote more than 16,000 new residential loans to SMSFs in the 2026 financial year, backed by $10.3 billion in security. And the AFIA says the numbers might be even higher.
"This is not a small or marginal segment of the lending market," said AFIA Chief Executive Officer Diane Tate.
“The ATO estimate of 4,000 per year is based on data that Treasury officials have acknowledged is around three years old," Tate added. "The policy was designed around an incomplete picture and supposedly a review conducted well over a decade ago.”
AFIA also argued that SMSF property borrowers are not taking on unusually high levels of debt, challenging concerns that SMSF lending could pose broader risks to the retirement system and housing market.
The industry group pointed to the lending profile of SMSF borrowers, arguing the data suggests the market has relatively low leverage. AFIA’s member figures showed average loan-to-value ratios (LVRs) of 67%, below the 70% to 80% range commonly seen in standard residential investment lending.
But AFIA is not calling for the ban to be scrapped entirely. Instead, the group is advocating for a narrower exemption that would allow new-build residential properties to remain eligible for SMSF borrowing. The proposal would rely on a definition of “new build” already used in the government’s own capital gains tax and negative gearing reforms.
"The government has already drawn a principled distinction between new and established residential dwellings in its CGT and negative gearing reforms, preserving full concessions for new dwellings to encourage housing supply," Tate said. "Applying that same logic to SMSF borrowing is internally consistent, uses the government's own drafting and does not reopen the core policy agreement.
"Removing this segment does not just affect SMSF trustees, it weakens competition in the broader mortgage market, and directly and adversely impacts housing supply and affordability across markets,” she added.
