Broker-originated loans made 70 per cent of all new residential loans at foreign banks in the June 2017 quarter, up by nearly 4 per cent on the prior year.
The latest property exposure statistics from the Australian Prudential Regulation Authority (APRA) report that new third-party originated loans approved by foreign banks in 4Q17 came in at $2.74 billion, reflecting 70 per cent of all loans approved. In the quarter to June 2016, the dollar value was higher ($2.76 billion) but the percentage was lower at 66.3 per cent.
In the March 2017 quarter, broker-introduced loans at foreign banks were 65.5 per cent of loans approved; in the December 2016 quarter they made 62.6 per cent.
APRA reported that in total, third-party originated lending made 50.5 per cent of all authorised deposit-taking institutions' (ADIs) new lending, up from 48.1 per cent on the 2016 June quarter.
The bank sector reported a third-party share of 50.8 per cent (up from 48.4 per cent), and broker-originated loans at the major banks made 48.7 per cent, up from 46.8 per cent in the June 2016 quarter.
Other domestic banks saw 55.4 per cent of loans come via brokers, up from 51.2 per cent, while credit unions and building societies saw third-party originated loans drop from 35.0 per cent to 32.3 per cent.
Majors' ‘astonishing’ dominance means foreign banks rely on brokers
CT Johnson, managing director at China research company Cross Border Management, told The Adviser that the growth in broker-introduced lending at foreign banks comes down to foreign banks’ lack of visibility and foreign banks referring clients to brokers.
He explained: “It is two things that you're seeing here. One is the relative popularity or brand recognition of Aussie banks versus foreign banks.
“One of the things that I note as an American that's living here is that the dominance of the big four is astonishing compared to other places that I've been. So if you're Citibank or Bank of China and you're trying to get more business, you probably have to go more through these broker channels than through the domestic brands.”
Prospective customers are more likely to visit a major bank than a foreign bank despite foreign banks possibly offering a better deal, but brokers have more awareness of the market, he added.
“The second thing that’s driving it is that you've got so much investment in business, agriculture and especially real estate. Foreigners are so interested in owning a part of Australia and those foreigners are probably contacting their … local banks.”
He gave the example of himself as an American approaching Chase Bank to buy property in Australia.
He said: “I've heard that the property market is going crazy [and] I probably am going to have more familiarity with Chase Bank and they're probably going to refer me to a broker.
“Going the other way, if I start talking to a broker about how do I get a loan [in Australia], then they make me aware of something that one of the American banks offers in the Australian market.”
Foreign investment crackdown will not have ‘material impact’
Both governments in Australia and in China have cracked down on foreign investment, with the Australian government imposing higher taxes and the Chinese government announcing restrictions on Chinese investors investing in foreign real estate last week.
However, both moves are unlikely to have a huge effect, Mr Johnson said. Echoing comments he made to The Adviser in July, Mr Johnson said that attempts by the Australian government to curb Chinese investment would be like “holding back the ocean with a broom”.
As for the Chinese government's crackdown, he said: “I think those will have a marginal impact but … [it] will not have a very significant impact.
“The thing that's driving property prices in Australia is much more around just straight up demographics; we've got more people and we just don't have that much buildable land. One of the reasons why Sydney is so expensive … is because when you start looking at the topography of Sydney, what you find very quickly is that there just aren't that many places to expand.
“More people [that] are coming into a limited space is going to drive prices higher no matter how many foreigners are coming in or not coming in,” he concluded.
However, Ren Wong, CEO of N1 Holdings and director of ChengDai, a home loan comparison website which caters to Chinese investors in Australia, said that he has no plans to introduce foreign lenders to the site's panel as he doesn't see foreign demand continuing at its current strength.
He told The Adviser: "At this stage, we have no intention [of introducing foreign lenders] as we don't [predict] foreigners' demand on Australian property will continue to be as hot as previous years due to stamp duty surcharge and the abolishment of off the plan incentives."
As a broker, he also doesn't tend to use foreign banks. He explained: "Foreign banks normally deal direct with local citizens, [so it] would be difficult for brokers in Australia to access this market, although not impossible."