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Overseas Investors Turn To Private Lenders For Finance

The boom in Chinese property investment in Australia suffered a setback this year when regulations were tightened by the Foreign Investment Review Board. Offshore Investor interest in Australian residential property has traditionally been welcomed, particularly by vendors pleased to find buyers with deep pockets.

But tighter regulations for both Australian as well as non-residential investors were deemed necessary by governing bodies to help cool down the heated property market in Sydney and the booming market in Melbourne.

The new regulations have come in the middle of an investment surge by Chinese non-residents. Australian houses and apartments are a very attractive investment for Chinese investors. They are cheaper compared with Guangzhou, Shanghai and Beijing. Chinese investors trust the dependability of Australian law to protect their investment in the long term. Plus the Australian economy is sound and housing price growth is strong.

Many Chinese investors entering the market were hoping to borrow from Australian banks under more favourable terms but are now unable to obtain finance at their previous expectations, and some are opting out. Developers in Sydney report a trend of Chinese investors rescinding apartment contracts and losing their deposits, with agents having to return commissions. But most investors are determined to hold onto their properties.

What are the alternative finance options?

Non-resident investors are having to look for alternative lenders for funding, with mortgage broker companies keen to assist. These alternative lenders offer different terms than the major Australian banks and are characterised by having higher interest rates and fees. Rates often start from around 12% per annum and usually include higher establishment fees and other added costs than those charged by major Australian banks. Loans are sometimes limited to companies with an ABN (Australian Business Number) or ACN. Maximum borrowing may be limited to around 60 – 70% of the property value. These options are expensive but still give a better solution for many than rescinding the purchase and losing the deposit on the property.

Having a very clear understanding of all the terms and conditions is important because in dealing with the amounts of money involved when buying property, small differences in the terms can amount to many thousands of dollars over the life of the mortgage.

Chinese banks have seen the opportunity to provide finance and are also filling the gap. China Construction Bank, HSBC and Industrial and Commercial Bank of China have also stepped up retail lending capabilities to Chinese investors in Australia.

Despite some Australian developers noting the slowdown in Chinese investment in the middle of 2016, others report it is gaining strength again, driven by determined mainland investors plus keen interest from Hong Kong.

Are Construction Loans available to non-residents?

Some lenders will approve construction loans for non-residents as long as they meet all of their other criteria. You must also use a fixed price contract with a licensed builder and have all the building, planning and development approvals.

If you are a non-resident and would like more information about investing in Australian property for the development of apartments, units or townhouses, SAW Constructions are glad to share our valuable experience. We are specialists in planning and development for Melbourne’s South East, the most desired zone for Chinese property investors in Melbourne. Call us today on (03) 9550 0700.