SMSF Property – What is Suitable

A Self-Managed Super Fund (SMSF) can purchase property as an investment, but strict rules govern how that property is acquired and financed — particularly when it comes to new or off-the-plan purchases.

Single Contract Requirement

When an SMSF buys a property using a Limited Recourse Borrowing Arrangement (LRBA) — which is the mechanism that allows an SMSF to borrow to buy an asset — the asset must be a "single acquirable asset" under the Superannuation Industry (Supervision) Act 1993 (SIS Act). This means the SMSF must purchase the land and the completed dwelling together under one single contract. It cannot enter into a standard house-and-land package, which typically involves two separate contracts (one for the land, one for the build).

Why SMSFs Cannot Finance Construction

Under the SIS Act and ATO rules, an LRBA cannot be used to fund the construction or improvement of an asset. The borrowed funds can only be used to acquire the asset in its final, complete form. This means:

• The SMSF cannot draw down a construction loan progressively as building milestones are reached

• The property must be substantially complete and titled before settlement

• Turnkey contracts (where the builder delivers a fully finished home at one point of settlement) are the compliant structure used to satisfy this rule

Why SMSF Properties Generally Cost More

Because the SMSF cannot carry the construction risk itself through a standard build loan, that risk sits with the developer or builder. As a result:

• The developer finances the construction and carries the holding costs during the build period

• These financing and holding costs are built into the purchase price passed on to the SMSF buyer

• The turnkey premium means SMSF buyers typically pay more for the same property compared to a standard owner-occupier or investor who could use a construction loan

• There are also higher compliance, legal, and administrative costs associated with maintaining an SMSF and an LRBA, which add to the overall cost of the investment

In Summary

SMSF property purchases under an LRBA must be single-contract, turnkey arrangements because the fund cannot borrow to build or improve an asset. This shifts financing costs onto the developer, which is reflected in a higher purchase price — making SMSF properties generally more expensive than equivalent properties purchased outside of super.