International borrowers wary of Aussie rate rises

Australia continually opening up on most fronts post pandemic means there’s more potential property investors travelling down under and seeing the nation as a politically stable safe-haven, according to Better Mortgage Management (BMM) managing director Murray Cowan. 

Relative political instability in many other countries is also contributing to people looking to take out mortgages for property to get a foothold in Australia, be they expats, visa holders or non-residents, Mr Cowan said.

However, people looking to buy an Australian property might still be a bit cautious after the recent rate increases, he explained, adding that, “… it's probably not going to result in a boom, but it should add some strength to the market.”

Established in 1999, BMM offers innovative mortgage finance products delivering solutions and support throughout the loan process to ensure it maintains, “…a stress-free borrowing experience for our customers and business partners,” it describes.

Mr Cowan’s assessment of international borrowing and the challenges they face – particularly stamp duty – comes as BMM launches its new funding package tailored to an array of potential buyers in three main categories.

Lending and buy from an ‘outsiders’ perspective

“It's important to define the three categories we specialise in: expats, visa holders and non-residents,” Mr Cowan said.

“Expats are Australians – though we can do loans for New Zealand citizens, too, for that matter - who might be in another country living and working, but they want to buy property in Australia or refinance property in Australia.

“A visa holder might be somebody who's living and working here in Australia but they might have an income source from offshore. They might have a visa to live here in Australia and we can do loans for permanent or temporary visa holders, as long as there is a minimum of at least 12 months.

“If they don't have 12 months to run, their tenure might be a little less certain as they might turn their back on a loan in future and ‘walk away’ from the property and the commitment.

"From a lending perspective you've got to be a bit careful about doing loans for borrowers based in a foreign country, or in our country on a visa. They may not be as committed to the property if, say, values fall. There is also the difficulty of getting a hold of someone in another country and time differences to allow for.

“Finally, there’s non-residents: people that don't live or work in Australia. They might be somebody that could have visited Australia to look at property, or might have bought the property sight unseen.

“As happens, they may not want to migrate to Australia, or maybe when they retire they might want to migrate to Australia, or they might just want to have a foothold in another country, such as Australia.

“People in some countries might get a little bit concerned that their government may take assets from them, or might make it hard for their family, or they want a better standard of living for their family and might look at Australia as a solution.

Paradoxically, is now a good time to invest?

“For some, Australia is a safe haven without their assets being put at risk,” Mr Cowan elaborated.

“It might be something of a way to have assets in different areas so that they don't have all their eggs in one basket. It might just be good risk management,” he said.

When The Adviser asked how the market presented itself to potential loan applicants in the above categories prior to, during and going forward now since the pandemic, he answered: “At different times over the years there's been sort of booms and busts of non-resident and expat-type buyers and there’s been a bit of an uptick of recent times, but I wouldn't say it’s a boom. There’s notably a bit of extra enquiry at present.”

“The issue for potential borrowers is still the increase of stamp duty by certain state governments from a few years ago, so that still exists as a bit of a barrier for some people to buy properties here in Australia.

“Generally speaking, expats don't have to worry about that if they are an Australian citizen.

“The other thing that happens with expats is quite often they live their working life in another country, and then might return to Australia once they’ve retired and they might want to build a property portfolio for their retirement - build one special property by a beach or in the country.

Who is looking and why?

According to Mr Cowan, there is continuing strong interest from countries like China, the UK, North America and New Zealand, with the rarer enquiries stemming from The Sudan and Uzbekistan, the latter often when borrowers are earning US dollars in sectors like mining and IT.

“There's a pretty constant demand from New Zealanders for Australian property and as an investment, also to own and occupy, or to pay for their kids to attend university.”

Concerns will always be around fluctuating exchange rates of different currencies to the Australian dollar, with the current monthly interest rate changes not helping, he said.

Yet, applicants face pre-approval from the 2014-launched Australian government Regulator Performance Framework (the RPF) via the Foreign Investment Review Board (FIRB).

Such an institution was set up to counter years of local property investment fraud from overseas buyers, or those where foreign income became a ‘grey area’.

As The Adviser reported at the time, as Australian banks pulled out of non-resident lending, a damning new report found deep and widespread problems in tackling money laundering and corruption in the UK real estate market.

In Australia, allegations of mortgage fraud at some of the country’s biggest banks sparked a crackdown on home lending to foreigners.

Mr Cowan confirmed that since those days of increased duties and the FIRB, BMM had noticed a dramatic drop-off in non-resident/visa/expat property enquiries.

“We did notice a dramatic drop off in interest after the changes to stamp duty. I think some international investors were put off by the increases,” he said.

“They weren't very happy about it because people could buy before that change reasonably readily and, after that, stamp duty surcharge for foreign buyers is up to 7 per cent in some states (the extra 7 per cent stamp duty on a $1.0 Million purchase is an additional $70,000 that would be payable for foreign buyers).

“But [now] from what we hear, there is still a pretty steady stream overall of people wanting to buy property in Australia.”

[Related: https://www.mortgagebusiness.com.au/property/10050-property-becomes-welcome-mat-for-foreign-money-launderers]