As long as you are not carrying on a business and adhere to the Sole Purpose Test.  There is nothing that prevents a SMSF from developing a property. Needless to say this would require a large amount of capital / cash.

Sole Purpose - http://mcnamaraandco.com/news/2012/04/what-is-the-sole-purpose-test-for-a-self-managed-superannuation-fund-smsf/