Breaking News: Labor & Greens Collude to Ban Leveraged SMSF Property

Yesterday afternoon Labor and Greens proudly announced a ban on limited recourse borrowing arrangements (LRBAs). In other words, SMSFs will no longer be able to borrow money to invest in residential property.

Their justification goes a little bit like this: people who use their retirement savings (super) to invest in property (<1%), are rich and greedy (80%+ are middle income earners). They are making home ownership impossible for first home buyers. Those evil bastards should be banned.

It goes without saying this is political desperation, and it will backfire heavily because: a) it won't budge the needle on property prices, and b) they've just insulted, hindered, inconvenienced and vexed a wide range of voters who all rely on this strategy and the downstream beneficiaries in construction.

Here's what you need to know:

Is LRBA lending banned today? No.

Has the government agreed to ban it? Yes

Likelihood of LRBA ban becoming law? 99% - it's basically a done deal. Labor & Greens have publicly backed it. They'll get the votes.

Are existing LRBAs grandfathered? Yes. If you have a property already or a property under contract before the law is passed.

What about commercial property? Interestingly, there are no plans to ban LRBAs for commercial property. Watch this space.

If you're thinking about doing a SMSF property investment strategy, you might want to get cracking. But please be mindful that property spruikers are going to use this urgency to pressure you into signing contracts. Do not buy something for the sake of buying something. If you want to know my thoughts on buying property in this market, I dedicated an entire chapter to it in my book Uninvestable.

https://www.amazon.com.au/Uninvestable-Everything-Inverting-Portfolio-Sovereign-ebook/dp/B0FY2RWSJX

What to look out for post-ban:

We're going to see whole bunch of unit trust / fractional ownership schemes ranging the spectrum of "well intentioned but bad" to "dodgy as hell". The reality is this: without leverage, the SMSF property investment strategy is inferior to a typical index strategy in the platform (non-SMSF) environment. I personally will not be endorsing any unleveraged SMSF property investment strategies and cautioning people against the same.

While these changes don't materially impact my strategy right now (because I'm capped out on SMSF properties), I'm strongly opposed to it. People should be allowed to invest their own retirement savings how they see fit, and banks should be allowed to lend to them. Expect a populist landslide in 2028 (or sooner!)

Speaking of banks - beware them. As SMSF loans are non-NCCP (they don't need to follow "responsible lending" guidelines), the banks are going to milk this for all they can. Banks are pricks like that. In the likely event that banks jack up interest rates because they know you can't refinance, don't panic, make sure you complain as hard as you can until you get a result you can live with. If that result still sucks, be sure to run a fresh cash flow analysis and ask yourself whether the short-term growth expectations outweigh your negative cash flow. If they don't, might be time to sell... to a non-SMSF buyer!