One of the most common questions asked among investors is whether superannuation can be used to invest in properties, and if so, how does it work? The answer lies in self-managed super funds.
Self-managed super funds give investors more control over how their retirement savings are invested and allow them to invest in a wide range of assets.
What Is a Self-Managed Super Fund (SMSF)?
A Self-Managed Super Fund (often called an ‘SMSF’) is a private superannuation (retirement savings) fund that you manage yourself, rather than relying on a large public or corporate fund. It allows you to take direct responsibility for your investment choices, including options such as property investment or company shares.
Key considerations:
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SMSFs offer greater control over investment decisions.
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You have the flexibility to invest across a wide range of assets, such as shares, term deposits and property.
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SMSFs are subject to strict legal and reporting obligations set by the ATO.
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Managing a self-managed super fund is generally best suited to experienced investors who are confident in handling compliance, documentation, and long-term investment planning.
Investing in Property Through an SMSF
Who Is It For?
An SMSF structure is generally suited to experienced investors who:
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Want direct control over their super investments
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Are interested in owning residential or commercial property investment assets directly
How It Works
With an SMSF, you can:
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Purchase residential or commercial property investment directly
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Invest in listed or unlisted managed property funds
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Borrow to buy property through a Limited Recourse Borrowing Arrangement (LRBA), though this option adds complexity and comes with strict lending rules
SMSF Investment Trends
Both commercial and residential property investments remain key asset classes within self-managed super funds.
Here is a breakdown of asset types within SMSFs, showing how property compares to other popular investment categories such as shares, cash, and managed funds
| Asset Class | Approx. % of SMSF Assets |
|---|---|
| Australian Listed Shares | ~ 27.5% |
| Commercial / Non-Residential Property (incl. via LRBA) | ~ 12–13% |
| Residential Property | ~ 7–8% |
| Cash & Term Deposits | ~ 15–20% |
| Unlisted Trusts / Managed Funds etc. | (Remainder) ~ 25–30% |
Source: ATO SMSF Statistical Overview 2022–23, published July 2024
Key Compliance Rules (ATO)
To stay compliant, the property must:
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Meet the sole-purpose test. It must only be used to provide retirement benefits
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Not be lived in or rented to family members
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Be bought, leased, or sold on market terms at arm’s length. All dealings must reflect market rates and conditions.
Non-compliance can lead to significant penalties, so professional advice and administration are crucial.
Benefits of Property Investment via SMSF
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Control: You choose the property and manage investment decisions
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Tax-effective: Rental income is taxed at 15%, and at 0% during the pension phase
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Asset growth: Opportunity for long-term capital growth
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Diversification: A way to balance your portfolio beyond shares or traditional funds
According to the ATO, SMSF investment in residential property rose by 26.4% to $55.2 billion between June 2021 and June 2024. Commercial property allocations also increased, reaching $102 billion.
Example
An investor may use an SMSF to consolidate their superannuation and purchase a high-yielding investment property. When structured correctly and managed in line with compliance requirements, this approach can generate steady rental income and contribute to their long-term wealth growth.
Managed Property Funds
For investors who prefer indirect exposure without direct ownership or borrowing, managed property funds can be an effective solution. These unlisted funds offer:
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Access to institutional-grade commercial properties
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Diversification across multiple assets and tenants
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Professional management with reduced day-to-day responsibility
Example:
An investor may allocate part of their SMSF balance to a diversified property fund, gaining exposure to a mix of office, industrial, and retail assets. This type of investment can generate steady income distributions without the need to manage the property directly.
This approach suits investors who value stability and diversification but prefer to avoid hands-on property management.
Risks to Consider
Before using super to invest in property, it’s important to weigh the risks:
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Complexity: SMSF setup and compliance require expertise.
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Liquidity: Property is not easily sold, which could pose issues in retirement.
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Concentration risk: A single residential property may dominate your super portfolio.
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Borrowing limits: LRBA rules are strict and add financial risk.
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Regulatory changes: Super rules and tax treatments can change over time.
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30% tax on earnings above $3 million (from 1 July 2025): Affects high-balance accounts only (~0.5% of Australians).
Seek Professional Advice
Investing in property through your super, whether directly or through a professionally managed property fund, can be a strategic way to build long-term wealth and diversify your portfolio.
However, it’s not a one-size-fits-all solution. Be sure to seek professional guidance where needed to meet all of your obligations.
