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Foreign buyers struggle to secure mortgage

Malavika Santhebennur 8 minute read

Foreign buyers from all parts of Asia are still finding it difficult to obtain a mortgage from the biggest Australian lenders, according to one commentator.

The chairman of real estate sales and media company Juwai IQI, Georg Chmiel, said the economic fallout from the coronavirus pandemic could exacerbate the constraints faced by foreign buyers.

“Lenders are tightening up their policies and making it more difficult for everyone to obtain loans, not just foreign buyers,” Mr Chmiel said.

“Third-party lenders are ready to provide loans, however.”

He continued that many overseas buyers “see the year ahead as a buying opportunity” given the rhetoric around falling house prices. 

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“At the moment, cash is king. Everyone wants to make sure they have money in the bank in case they can buy at a bargain,” he said.

According to Mr Chmiel, while Chinese buying enquiries on Australian properties declined by 14 per cent in the first quarter, this was much less than the 40 per cent decrease in local buyers. The cities in demand from Chinese buyers are Sydney, Melbourne and Brisbane.

“It looks like demand by premium Chinese buyers has actually increased,” Mr Chmiel added.

Indeed, real estate finance brokerage Global Mortgage Group co-founder Donald Klip said Chinese buyers have been “surprisingly interested” in the Australian property market at present.

“Australia last year was really slow, but the last three to six months have been strong, partly because of where the Australian dollar is trading against the US dollar,” Mr Klip said.

According to the Global Mortgage Group’s own financing figures, in Q1, 20 per cent of Asian cross-border mortgages were linked to Australian real estate, compared with 44 per cent that were linked to US real estate, 19 per cent to the UK, and 14 per cent to the EU.

Noting that their figures provide only a limited sample size, Mr Klip added that they “nonetheless offer valuable directional insights”.

Overall, cross-border buyers, mostly from Asia, bought 500,000 homes in the G7 countries alone in 2019, worth an aggregate value of US$250 billion.

According to Mr Klip, if barriers to obtaining cost-effective financing were removed, that market could be as big as US$5 trillion and 37 million homes.

“That’s twice the size of South Korea’s market,” he said.

“Chinese buyers are very active. The folks who are worried about the outlook in China are starting to look elsewhere, and the coronavirus pandemic has given them even more motivation.”

Around 50 to 60 per cent of the mortgages provided to Chinese consumers by Global Mortgage Group is related to refinancing or releasing equity in real estate they already own.

“Over the past 10 years, the typical Chinese buyer paid cash because of the lack of other financing options,” Mr Klip said.

“Many Chinese are worried that their currency will weaken at some point soon. There has been a perfect storm of uncertainty and wanting to diversify overseas, while also taking advantage of the low rates to buy more property.

“Once we get past the worst of the virus-related shutdowns and digest how things will look over the next year or so, we will see more of these investors.”

[Related: ‘Serious’ challenges ahead for housing demand: CoreLogic]

Foreign buyers struggle to secure mortgage
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Malavika Santhebennur

Malavika Santhebennur

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.

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