If you have a Self-Managed Super Fund invested in property, you’ve probably seen how quickly the market can change. One year, property prices across Australia may rise strongly, then the next, values can plateau or fall. For SMSF trustees, this can create a difficult challenge. Unlike individual investors, your fund must remain compliant, solvent, and able to meet its obligations even when the property market dips.
Building resilience into your SMSF isn’t about predicting the next downturn. It’s about planning so your fund can operate smoothly in any market. In this guide, Ausfirst Lending Group explains how you can protect your SMSF and maintain stability through changing property conditions.
1. Strengthen Your SMSF Through Smart Diversification
A well-diversified SMSF spreads its risk across different types of assets so that no single event, such as a property downturn, causes serious damage. The Australian Taxation Office (ATO) and ASIC both highlight diversification as a key principle of responsible fund management.
Let’s look at how this can work in practice.
Don’t rely on a single property type or region
It’s common for trustees to focus solely on property, especially if one investment has performed well in the past. However, relying on a single asset type or location can expose your SMSF to concentrated risk.
For example, an SMSF holding one commercial warehouse in a regional area may be heavily affected if tenant demand falls or local values drop. Diversifying across states or property sectors can help reduce the impact of a downturn in any one market.
A balanced SMSF might include:
- Residential property in one state and commercial property in another
- A mix of metropolitan and regional holdings
- Exposure to other assets beyond property
Add asset mix for balance
The ATO suggests that trustees consider a blend of different asset classes to help manage overall risk. There’s no fixed ratio that applies to every fund, as each SMSF’s strategy and risk tolerance will differ. What matters most is maintaining balance so your fund isn’t overly reliant on one market or asset type for returns.
A diversified SMSF portfolio might include:
- Property: 40–60%
- Shares or managed funds: 20–40%
- Cash or term deposits: 10–20%
Diversifying within property
Even if your SMSF holds a large portion of property, you can still diversify within the sector. Some trustees choose to mix commercial and residential assets, while others combine direct property ownership with exposure to property trusts or syndicates. Each property type carries its own level of risk and return, so spreading across different segments can help stabilise overall performance and reduce exposure to any single market shift.
Examples of property diversification include:
- Residential properties that may offer steady demand and lower vacancy risk
- Commercial properties that can deliver higher yields but depend on a smaller number of tenants
- Industrial or warehouse properties that tend to move with business and logistics cycles
Avoid related-party overexposure
Some SMSFs own business premises leased back to a related company. While this can be compliant under certain conditions, it increases exposure to the tenant’s financial position. If the related business struggles, rental income may stop, putting loan repayments at risk. Maintaining unrelated tenants or diversifying across multiple leases can help limit this dependence.
Diversification isn’t just about spreading investments. It’s about building flexibility into your SMSF so it can adapt to changing market conditions.
2. Review and Optimise Your SMSF Loan Structure
An SMSF that borrows through a limited recourse borrowing arrangement (LRBA) must balance opportunity with risk. Borrowing can amplify returns when values rise, but can also magnify losses during downturns. The way an SMSF loan is structured and managed greatly influences how effectively the fund can handle market fluctuations.
How leverage affects returns and risk
High gearing (loan-to-value ratio, or LVR) may boost returns when property prices are increasing, but it also increases exposure if values fall. For instance, an SMSF property purchased at 80% LVR may face repayment pressure if rental income declines or the property value drops.
Many lenders prefer conservative gearing for SMSFs, often between 60% and 70% LVR. This leaves room for market adjustments without breaching loan covenants or reducing liquidity too far.
When reviewing your loan, ask:
- Could the fund maintain repayments if rental income fell?
- How would a 10–20% drop in property value affect the fund’s equity?
- Are there opportunities to reduce gearing through extra repayments or refinancing?
Refinancing or fixing rates in uncertain conditions
Some lenders may offer rate-lock or fixed-rate options for SMSF property loans, providing repayment certainty during times of rate volatility. Others may allow partial splits, with one portion of the loan remaining variable for flexibility and another fixed for stability.
Refinancing might also help reduce costs or extend the loan term, though SMSF refinance rules can differ between lenders. We regularly review available SMSF mortgage options and can show how terms and fees vary across banks and specialist lenders. For trustees considering this step, understanding how to refinance an SMSF loan may clarify what’s involved and help assess whether it aligns with the fund’s broader strategy.
Structuring for serviceability
Lenders assess SMSF serviceability differently from personal loans. They typically look at the fund’s rental income, employer and member contributions, available liquidity or cash reserves, and any existing expenses or liabilities. Some lenders may also apply higher interest rate buffers when testing repayment capacity. Maintaining a solid surplus between income and expenses helps demonstrate financial strength and can reduce approval risk.
When to revisit your SMSF loan terms
Your SMSF’s borrowing structure shouldn’t stay the same indefinitely. It’s worth reviewing when interest rates change noticeably, when a lease ends or a tenant changes, or when rental yields move up or down. You should also reassess the loan if additional contributions or new investments affect the fund’s liquidity.
Conducting a structured review every 12 to 18 months helps keep your loan aligned with your fund’s goals and current market conditions. If refinancing could strengthen resilience or improve cash flow, we can help compare lender options and assess eligibility.
3. Build and Maintain Liquidity Buffers
Liquidity refers to how easily your SMSF can access cash to meet obligations such as loan repayments, expenses, and member benefits. During a property downturn, liquidity becomes your first line of defence. Without sufficient cash flow, your SMSF may be forced to sell assets at unfavourable times.
What a liquidity buffer is and why it matters
A liquidity buffer is the amount of cash or near-cash the SMSF keeps readily available. These funds can be held in a term deposit, savings account, or offset facility linked to your SMSF loan. Having a liquidity buffer means your SMSF can continue making loan repayments, paying expenses, and meeting compliance requirements even if rental income drops or contributions slow.
For example:
- A six-month vacancy in your property could stop rental income.
- A sufficient liquidity buffer allows the fund to keep servicing the loan without breaching covenants.
Minimum cash reserve expectations
While the ATO doesn’t mandate a specific minimum, many lenders require SMSFs to hold at least 10–20% of the property value in accessible cash or liquid assets before approving a loan. After settlement, maintaining a similar level of liquidity is wise. This ensures your fund can cover unexpected repairs, valuation changes, or interest rate rises.
Managing member contributions and timing
Timing of contributions plays a big role in liquidity. Planning employer and member contributions around key expenses helps maintain a stable cash flow. For example, scheduling voluntary contributions before large loan repayments can prevent shortfalls. It’s important to ensure contributions stay within annual concessional and non-concessional limits to remain compliant with ATO rules.
Early intervention and cash flow reviews
Reviewing your SMSF cash flow regularly, ideally each quarter, helps spot issues early. If liquidity starts to drop, you can trim expenses, delay new purchases, add contributions within limits, or adjust rent or loan terms. Strong liquidity shows lenders and auditors that your SMSF is managed responsibly.
4. Monitor and Rebalance Regularly
Even the best-structured SMSF can drift off course over time. Market values change, rental income varies, and contribution patterns evolve. Regular monitoring and rebalancing keep your SMSF aligned with its strategy and compliance requirements.
Annual SMSF reviews
An annual review allows you to check that diversification remains suitable, property valuations are up to date, loan-to-value ratios stay within safe limits, and liquidity levels remain adequate. These regular checks also help ensure your SMSF continues to meet its investment strategy and trust deed obligations.
Using independent property valuations
Getting a professional valuation every one to two years gives a clear, unbiased view of your property’s market value, which is especially important for highly geared SMSFs. Updated valuations help you recalculate equity and LVR, identify possible refinancing opportunities, and maintain accurate reporting for auditors and the ATO. If values fall, taking early action such as increasing liquidity or reducing gearing can help prevent SMSF compliance issues later.
Adjusting your SMSF’s investment strategy statement
Your SMSF’s Investment Strategy Statement (ISS) should reflect the fund’s current objectives and risk profile. If your asset mix, loan exposure, or member circumstances change, your ISS may need updating.
Typical triggers for review include:
- Buying or selling a property
- Changing tenant types (for example, moving from residential to commercial)
- Major changes to contribution levels
- Significant value shifts in property or other assets
Documenting updates shows auditors that the trustees actively manage the fund and have considered diversification, liquidity, and risk management as required by the Superannuation Industry (Supervision) Regulations.
Plan Your SMSF Now to Stay Ahead of the Property Cycle
Australia’s property market will always move through cycles of growth and correction. For SMSF trustees, the goal isn’t to avoid these shifts but to be ready for them. By keeping borrowing at sustainable levels, maintaining liquidity, reviewing property values regularly, and seeking professional guidance when policies or conditions change, you can build a fund that stays steady even when the market slows.
If you’re looking to strengthen your SMSF’s position and plan for long-term stability, Ausfirst Lending Group can help. As an SMSF mortgage broker, we work with a range of Australian lenders to help trustees compare options and structure loans that suit their fund’s goals and compliance requirements.
Strong planning builds strong funds. Speak with us today to review your SMSF loan and explore your available options.
Frequently Asked Questions (FAQs)
Yes, it can. If most of your SMSF’s value is tied up in one or two properties, the fund becomes less flexible and more exposed to market drops. The ATO expects trustees to maintain diversification and liquidity. If you’re unsure whether your fund is too property-heavy, we can help review your lending and asset balance safely.
If your SMSF property falls in value, it doesn’t automatically cause a breach, but it can affect your loan-to-value ratio and overall fund balance. The key is monitoring valuations and liquidity. Lenders and auditors may require updated valuations if the change is significant, so regular reviews help prevent compliance or cash flow issues.
Some lenders may allow short-term repayment relief or loan restructuring for SMSFs if there’s a valid reason, such as tenant loss or cash flow pressure. Each case depends on the lender’s policy and the fund’s liquidity. It’s important to contact your broker early to discuss options before arrears or compliance issues arise.
Keeping SMSF cash in an offset account can help reduce interest on the loan while keeping funds accessible. However, some lenders don’t offer offset features for SMSF loans, and fund rules still require that cash be used solely for SMSF purposes. Your broker or accountant can help you check which setup best fits your structure.
Ideally, you should review your SMSF loan every 12 to 18 months, or sooner if market conditions, rental income, or contribution patterns change. Regular reviews help ensure your loan remains compliant, competitive, and sustainable. At Ausfirst Lending Group, we can assess your fund’s current structure and compare options with multiple SMSF-approved lenders.
