Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 117

SMSFs and house and land packages

Property investment is gradually becoming more popular with SMSF investors, and I am often asked whether SMSFs can purchase house and land packages. Not only would the SMSF hopefully achieve some long term capital gain, it would also be entitled to claim some depreciation on the new asset as it ages. I always clarify first whether my clients want to purchase a house and land package or purchase a vacant block of land and then build a house on it. What is the difference? It can make a huge difference in the SMSF world, especially when there are borrowings involved.

Purchase as a single acquirable asset

An SMSF can borrow money to purchase a house and land package as long as it is purchased together in the one transaction as a single acquirable asset where the asset is identified up front as vacant land with a completed house on it.

But if an SMSF purchased a block of land with borrowings and then later built a house on the land, this would not be allowed under the limited recourse borrowing arrangement (LRBA). The superannuation law does not allow the single acquirable asset, in this case the block of land, to be improved (by building a house on it) while the loan remains outstanding. There is a very good reason for this.

The borrowing rule is referred to as a limited recourse borrowing arrangement. It means the lender’s rights, on any default on the borrowing by the SMSF, are limited to the single asset acquired under the arrangement. This means, the lender does not have any claim over any of the SMSF’s other assets. The borrowing is quarantined to the single acquirable asset. The law is designed to protect the remaining assets within the SMSF in the event of its default.

So, if an SMSF borrows to purchase a block of land and later builds a house on the land, and then due to some unfortunate financial circumstances cannot repay the loan, the lender will take possession of the asset – which is now a property consisting of a house and land. The money that the SMSF spent building the house on the vacant land is lost as it cannot be recovered from the lender. To make matters worse, the SMSF has also contravened the LRBA and would be in trouble with the Tax Office.

Make sure the SMSF complies

The trustees of the SMSF must ensure that:

  • they identify up front that the single acquirable asset is the land with a completed house on it
  • the lender’s security on the borrowing is at all times over the land and the completed house
  • the LRBA with the lender allows for multiple draw-downs for the deposit, progress payments and the final payment at settlement.

House and land packages can offer investment opportunities for SMSFs, but if they don’t comply with the law, the investment could end up being a costly mistake.

 

Monica Rule is an SMSF Specialist Adviser and the author of ‘SMSFs and Properties’. See www.monicarule.com.au. This article is for general education purposes only and does not consider the personal circumstances of any investor.

 

RELATED ARTICLES

Heed my problems borrowing in my SMSF

Oh dear, not another glitch with borrowing in SMSFs

Watch SMSF borrowing rules for separate assets

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Economy

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Investing

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Property

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Shares

ASX reporting season: Room for optimism

Despite mixed ASX results, the market has shown surprising resilience. With rate cuts ahead and economic conditions improving, investors should look beyond short-term noise and position for a potential cyclical upswing.

Property

A Bunnings play without the hefty price tag

BWT Trust has moved to bring management in house. Meanwhile, many of the properties it leases to Bunnings have been repriced to materially higher rents. This has removed two of the key 'snags' holding back the stock.

Investment strategies

Replacing bank hybrids with something similar

With APRA phasing out bank hybrids from 2027, investors must reassess these complex instruments. A synthetic hybrid strategy may offer similar returns but with greater control and clearer understanding of risks.

Shares

Nvidia's CEO is selling. Here's why Aussie investors should care

The magnitude of founder Jensen Huang’s selldown may seem small, but the signal is hard to ignore. When the person with the clearest insight into the company’s future starts cashing out, it’s worth asking why.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.