australia property loan

Australia Property Loan – Aussie Vs Singapore Banks

Unknown to many, Singapore banks have long been active in providing Australia property loans for purchases in the 3 main cities of Sydney, Melbourne, Perth (plus Brisbane for some lenders) to both Singaporeans as well as foreigners onshore and offshore to Singapore, as long as one is not a resident of Australia.  This applies even to Aussie expats working outside of Australia.

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With the clampdown on mortgages issued to foreigners in Australia since 2016, more Aussie property investors are finding reprieve from lenders in Singapore.  To give a quick understanding, we give a summary on the key differences between borrowing from Aussie banks (for those still eligible) and from Singapore banks below.

 

Information As At August 2018

Loan FeaturesAustralia Property Loan
From Singapore Banks
 
Australia Property Loan
From Australian Banks
Eligibility

 

Non-tax resident of Australia;
Singapore Citizen/PR;
Onshore/offshore foreigners to Singapore
Australian tax residents;
Australia Citizen/PR;
Mainly onshore foreigners to Australia
Purpose

 

Must be for investment only;
(both purchase or remortgage from Aussie/Singapore banks)
Both investment and own-use
(both purchase & remortgage)
Base Currency

 

Choice of AUD or SGDAUD only
Currency Switch

 

YesNo
Interest Rate

 

Variable rate only
(P+I, no interest-servicing loan option)
Fixed and variable
(with interest-only option)
Mortgage Peg

 

3-month SIBOR (In SGD);
Bank’s AUD COF/3M-BBSW* (In AUD)
Variable rate based on internal BOARD
(usually reference on cash rate from RBA)
Loan-Value-Ratio (LVR)Mostly 60% with max up to 70%
(75% for Singaporeans)
Mostly 80%
(max up to 90% for Aussies)
Minimum Loan

 

A$200,000 to A$300,000A$100,000
Max Loan Tenure

 

30 years or up to age 7530 years or up to age 99
Location

 

Sydney, Melbourne, Perth, Brisbane;
Usually within 25km from City Center;
Approved project list
All cities and projects
Type Of Property

 

Must be completed in 1 single disbursement, usually apartments/condoAll types completed or under construction
Built-in Area

 

50sqm
(internal only exclude balcony/PES)
40sqm
(internal only exclude balcony/PES)

 

As our chart above illustrates quite clearly the differences between taking out a mortgage from an Aussie bank versus that from a Singapore lender, we need only to highlight a few other considerations when choosing between the two:

 

1. Amount of expenses and debt information to be furnished

In an effort to clamp down on excessive lending in recent years, Aussie banks have stepped up their checks on applicants’ expenses and debt level declared by seeking a whole bunch of onerous documents from credit card statements to household bills.  Australian authorties have also announced in Nov 2017 plans to introduce a mandatory centralized credit reporting regime which forces the big four lenders downunder to participate fully from July 2018 by feeding credit rating agencies with detailed credit card and loan payment information.  What this means is a more transparent and holistic view of one’s credit worthiness at a national level which is expected to impact the amount of loan to be granted from Australian lenders.

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In fact, just this month Bloomberg reported that according to UBS Group AG analysts, the new regime which brings about more genuine assessment of spending behaviours (Aussie banks have displayed consistent under-estimate of living expenses) would curtial borrowing power of the A$1.6 trillion by as much as 35%!

This has big implications for property investors in Australia who would do well to start looking elsewhere for leverage.  By and large, it is still a breeze for non-residents to borrow from Singapore banks for their Australia property purchases, who requires just 6 month’s of payslips with matching bank statements showing salary-crediting.

 

2. Need for AUM (asset under management)

However, for foreigners, most lenders in Singapore would require onboarding of preferred or priority banking which means you need to park around S$200,000 of funds with the bank here in Singapore.

This could be waived in certain situations or you might be asked instead to earmark a much smaller sum equivalent to 36 months of the mortgage instalment payable upfront.  This requirement can actually become an advantage (see next point) if you know how to make full use of currency movements.  You should speak to our dedicated team of mortgage consultants who would guide you step-by-step on how to secure your Australia property loan in Singapore.

 

3. Currency risk when financing in SGD – boon or bane?

Financing your Australia propery purchase from Singapore banks also present a unique opportunity to profit from currency movements, notwithstanding the risks involved which can be mitigated.

Take for example in recent months due to fears of China’s economic slowdown in the face of tariffs and trade war from the United States, Aussie dollar slips against the Sing dollar dropping to a recent low of $0.997 on 15 Aug.  This makes a good entry point for one to take out a mortgage in SGD for financing Australia property purchase, with a view to profit from a subsequent rise in AUD/SGD which leads to a smaller loan in Aussie dollar terms.

Supposed John who works in Hong Kong buys his Melboure apartment for A$800,000 with a 60% LVR mortgage from a Singapore bank at A$480,000, which he took in S$ financing and converts at AUD/SGD $0.997 to S$478,560 and service the loan with an interest at 3.8% over 30 years tenure.

Imagine Aussie dollar recovers back to FX rate of AUD/SGD at $1.050 in a year’s time, and John decides to switch his loan base currency from SGD back to AUD, he would convert his loan outstanding of S$469,835 to A$447,461.  Had he taken the loan in AUD back then, at the same interest rate of 3.8% over 30 years, his loan outstanding would now be A$471,249 instead after 1 year.  This translates into a savings of A$23,788 for John which is equivalent to a reduction of almost 5% on his original loan amount of A$480,000!

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4. Interest-only servicing option

Another key difference is that Australian banks offer interest-servicing mortgage option where in the initial years of the loan (usually 5 years) borrowers need only pay the interest component without any reduction in principal every month. The central bank RBA (Reserve Bank Of Australia) estimated that up to A$360b (1/5 of the mortgage market) of IO (interest-only) mortgages would roll-over to P+I (principal + interest) over the next 3 years which some has called this ticking time bomb.  The mortgage reset to P+I will place great strain on borrowers struggling to hold on to the property especially at a time when cash rate might be adjusted up.

IO loans might not be such a good idea for long-term investors in Australia property.  Still, it is no doubt for an attractive leverage option available to those who could borrow from Australian banks (new requirements has it now that no more than 30% of new loans issued every month can be IO loans).  The next few years might throw up buying opportunities indeed at firesale prices, but only for residents in Australia who could buy from the resale market which is not still not accessible to foreigners.

 

For a more indepth understanding of how one can qualify for Australia property loan financing from Singapore banks, speak to our team of mortgage consultants today, obligation-free!

 

Since 2014, MortgageWise.sghas provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements.  We aim to build trust with clients for longer-term partnership and not just do product-pushing for a one-time deals unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us.  See our clients’ testimonials.

 

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