In March 2016 ANZ Banking Group (one of Australia’s big four) closed their doors to foreign buyers. This was closely followed by Westpac, and then all other Australian banks. Thousands of international buyers were left without the finance to settle on purchases entered into prior to the changes. Those affected had to source other funds or else forego their 10% down-payment.
As yet this situation remains unchanged. A lack of affordable lending became the main hurdle for our Malaysian clients from their Australian property purchases, so we set to work providing solutions!
Property finance should always be considered on an individual basis by a qualified financial advisor, every buyer has his own unique financial situation and requirements for their money, however the options below provide handrail for prospective buyers.
Here are a few popular options:
- Malaysian Bank Overseas Mortgage Loans. Many Malaysian banks offer lending to Malaysians buying in Australia. This is often the cheapest option with low setup fees and relatively low interest rates, with the added bonus of being provided by a brand you trust. However each bank has its own lending criteria; some will only lend against property within a 15km of CBD; some will only lend against properties in certain major cities (normally Sydney, Melbourne and either Perth or Brisbane); some have a minimum unit size of 50sqm; and most will apply the same approval criteria as they do to secure a home loan with them in Malaysia, inc. credit check and affordability check. The major drawback here is that the loan payments must be made in MYR, which exposes you to foreign currency fluctuations.
- Overdraft Against a Fixed Deposit. The most flexible option is to take an overdraft facility against a Fixed Deposit held in MYR here in Malaysia. Rates are more complicated as you will receive interest on the FD whilst paying interest on the loan, today this works out at around 5.5-6% overall. The term of the loan is normally up to 10 years, and flexible (i.e. can be paid off as you go to reduce the interest payments). This option works by depositing a cash lump sum in a Malaysian bank and then borrowing twice the amount of the investment, e.g. deposit RM500,000 and borrow RM1,000,000. This cash can then be used to purchase Australian property. Again payments will be made in MYR, which will be exposed to foreign currency fluctuations which can seriously harm your investment.
- Secondary Lenders. Secondary lending either in Australia or Singapore is a very accessible option for Malaysian buyers, but with higher rates and lower loan to value ratio. One big advantage here is the option for low or no document checks, meaning you can be confident that the lending will be approved. You should only consider borrowing funds from fully regulated, secure and reputable lenders. Rates for this type of lending vary and can be very high if taken in Aussie Dollar, but there are some good value options too.
- Developer’s Loan. Essentially this is a form of secondary lending provided by the developer usually in partnership with a finance provider. The advantage over and above other secondary lending is that the development will have already been approved for the finance, and the interest rate will usually be significantly lower. These loans have the lowest approval criteria, many will not require any affordability checks and are approved at exchange of contracts making it a very favourable option for international buyers worried about the terms of the loan changing before the project completes.
- Premium Banking. If you are a premium banking client with one of the international banks in Malaysia (notably HSBC) then you may well be eligible for lending from your bank’s Australian arm. This will almost certainly be the lowest cost option and can usually be provided in Aussie Dollar. It has the significant benefit of having your relationship manager in place to iron out the creases.
These are some of the options to look at when considering your purchase in Australia. Some are less conventional than others, but all provide the security of the regulatory bodies within either Malaysia, Australia or Singapore.
Reapfield International works closely with lenders across the spectrum of Australian property finance, and are always happy to help.
Article by Joel Waller
Reapfield International, CEO