What is actually different between the two?
The headline difference after August 2026 is what remains open. The change closed most new residential SMSF lending. It did not touch business real property, so commercial remains open for new purchases as well as refinances. Residential is refinance-only territory now.
Underneath that, the two behave differently because the asset behaves differently. A residential property has a deep resale market and a rental yield that moves slowly. A commercial property is worth what its lease makes it worth, so lenders assess the tenant and the lease as closely as the building.
Commercial also carries a structural advantage residential cannot: an SMSF may acquire business real property from a related party at market value and lease it back on arm’s length terms. That is how a trustee ends up owning their own business premises inside the fund. Residential property cannot be bought from a member or a relative at any price.
How do rates and LVR caps compare?
| Residential | Commercial | |
|---|---|---|
| New purchases | Largely closed | Open |
| Refinance | Open | Open |
| Indicative rate floor | From 6.89% p.a. | From 7.39% p.a. |
| Highest LVR on the panel | 90% | 80% |
| Buy from a related party | Not permitted | Permitted at market value |
Commercial prices above residential and caps lower. That is the premium for a thinner resale market and income that depends on a single tenant, not a comment on the quality of the asset.
How does servicing assessment differ?
On residential, lenders generally work from rent plus fund contributions, with the personal income of members left out of it. Some apply a liquidity benchmark so the fund retains a buffer after settlement; several apply none at all.
On commercial, the lease does the heavy lifting. Lenders test whether the rent covers the repayment by a stated margin, expressed as an interest cover ratio or a debt service cover ratio, commonly around 1.5 times and often stress-tested at a rate two per cent above the actual one. The consequence is that lease length, tenant quality and any vacancy risk drive the assessment more than the fund’s balance does.
Security type matters more on commercial too. Offices, warehouses and retail are mainstream; boarding houses, serviced apartments and specialised premises are frequently capped at lower LVRs or excluded.
Which one applies to your property?
The dividing line is the use of the land, not the zoning or the label on the title. A property used wholly and exclusively in a business is business real property, and the wholly and exclusively test is where the edge cases get decided.
For an existing loan the answer is usually already settled by how the fund acquired the property. If you are refinancing either kind, the eligibility check branches on property type at the second question and prices from the matching table.
Refinancing either type
The eligibility check handles residential and commercial refinances.
Buying commercial
Still open to SMSFs. A capacity call works out what the fund could borrow.