“We have already seen plenty of examples of catastrophic losses with SMSFs where members have got [themselves] into heavily geared property schemes,” he told SMSF Adviser.

“It just introduces excessive risk… there are certainly sensible strategies but it is far too easy for them to go wrong,” he added.

Mr Baker said it was a “big mistake” to permit SMSFs to borrow following policy changes made by the government.

“[It] basically opened the dam gates to essentially allow any kind of borrowing on any kind of asset, which led us to where we are today,” he said.

“It is an area of concern because this is where you tend to get losses arising from when you combine gearing with real estate or exotic assets.”

Also speaking to SMSF Adviser, AMP chief economist Dr Shane Oliver said negative gearing only works if you “eventually” make a profit from your investments.

“You are not going to make any money if you are constantly losing a lot of it,” he said.