Townhouses are one of the most popular SMSF residential investment choices — combining the land component of a house with the lower entry price of an apartment. Following the 2026 SMSF residential borrowing ban, many investors are asking whether townhouses are still a viable SMSF strategy.
What the Borrowing Ban Means for SMSF Townhouse Purchases
Townhouses are classified as residential property. This means new SMSF Limited Recourse Borrowing Arrangements (LRBAs) for townhouse purchases are prohibited under the proposed legislation — in the same way as houses and apartments.
Can an SMSF Buy a Townhouse Without Borrowing?
Yes. If your SMSF has the cash to purchase a townhouse outright, the ban does not prevent the purchase. The restriction applies specifically to new LRBAs for residential property — not to SMSF ownership of residential property funded from existing SMSF assets.
Is a Townhouse Still Worth Buying Through an SMSF Without Leverage?
Without an LRBA, the return profile of a townhouse investment changes materially. SMSF investors need to consider: the full purchase price must come from SMSF cash, rental yield on an unlevered basis, opportunity cost vs commercial property (where leverage is still available), and the impact on SMSF liquidity and diversification.
Frequently Asked Questions
Is a townhouse considered residential property for SMSF purposes?
Yes. Townhouses are classified as residential property and are subject to the residential borrowing ban for new SMSF LRBAs.
Can I use an LRBA to buy a townhouse before the ban takes effect?
This depends on the legislation commencement date. Seek urgent advice from a licensed SMSF specialist if you are considering this option.
What alternatives exist for SMSF investors who wanted to buy a townhouse?
The main alternatives are: purchasing outright with SMSF cash, pivoting to commercial property (where borrowing remains available), or investing through a non-SMSF structure.
Access Off-Market SMSF Investment Opportunities
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