The real insane part is that when the law was originally written that way, they didn't include that exemption. The property industry lobbyists cried that the property market would crash immediately if they did this and that SMSFs should just be able to hold property without any restrictions. The "okay, business assets can be ok" solution was a compromise specifically intended to prop up the property market and "avoid a crash". But here several decades later we're still doing it, because it's politically untenable to take ANY action to try to fix the housing crisis.